THIRD DIVISION Thus, it filed a petition for certiorari with the Court of Appeals, arguing that the City of
Davao's taxation of its properties and their subsequent auction and sale to satisfy the
G.R. No. 190324, June 06, 2018
PHILIPPINE PORTS AUTHORITY, Petitioner, v. THE CITY OF DAVAO,
SANGGUNIANG PANGLUNGSOD NG DAVAO CITY, CITY MAYOR OF DAVAO CITY,
CITY TREASURER OF DAVAO CITY, CITY ASSESSOR OF DAVAO CITY, AND
CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA), Respondents.
DECISION
LEONEN, J.:
When a tax case is pending on appeal with the Court of Tax Appeals, the Court of Tax
Appeals has the exclusive jurisdiction to enjoin the levy of taxes and the auction of a
taxpayer's properties in relation to that case.
This is a Petition for Review on Certiorari,1 assailing the Court of Appeals December 15,
2008 Decision2and September 11, 2009 Resolution3 in CA-G.R. SP No. 00735-MIN,
dismissing the Philippine Ports Authority's Petition for Prohibition.
The Philippine Ports Authority was created under Presidential Decree No. 857, as
amended. It was mandated "to implement an integral program for the planning,
development, financing, and operation of ports in the Philippines" and was "empowered to
administer properties of any kind under its jurisdiction."4
On June 17, 2004, the Philippine Ports Authority received a letter from the City Assessor
of Davao for the assessment and collection of real property taxes against its administered
properties located at Sasa Port. It appealed the assessment via registered mail to the
Local Board of Assessment Appeals through the Office of the City Treasurer of Davao on
August 2, 2004. The Office of the City Treasurer of Davao received the appeal on August
11, 2004, and forwarded it to the Chairman of the Local Board of Assessment Appeals,
who received it on September 6, 2004. While the case was pending, the City of Davao
posted a notice of sale of delinquent real properties,5 including the three (3) properties
subject of this case, namely, 1) the quay covered by Tax Declaration No. E-04-09-
063842; 2) the parcel of land with Tax Declaration No. E-04-09-092572; and 3) the
administrative building under Tax Declaration No. E-04-09-090803.6
The Local Board of Assessment Appeals dismissed the Philippine Ports Authority's appeal
for having been filed out of time, and for its lack of jurisdiction on the latter's tax
exemption in its January 25, 2005 Order.7 The Philippine Ports Authority appealed8 before
the Central Board of Assessment Appeals, but this appeal was denied in the Central Board
of Assessment Appeals April 7, 2005 Decision.9 Thus, it filed an appeal with the Court of
Tax Appeals.10
The Philippine Ports Authority claimed that it did not receive any warrant of levy for the
three (3) properties which were sold to respondent City of Davao, or any notice that they
were going to be auctioned. It was informed that it had one (1) year from the date of
registration of the sale within which to redeem the properties by paying the taxes,
penalties, and incidental expenses, plus interest at the rate of 2% per month on the
purchase price.11
alleged tax liabilities were without or in excess of its jurisdiction and contrary to law. It
argued that it had no other speedy and adequate remedy except to file a petition for
certiorari with the Court of Appeals.12
While the petition was pending with the Court of Appeals, the Court of Tax Appeals
promulgated a Decision13 dated July 30, 2007, granting the Philippine Ports Authority's
appeal, resolving in its favor the issue of its liability for the real estate tax of Sasa Port
and its buildings. The dispositive portion of this Decision read:
WHEREFORE, premises considered, the present Petition for Review is
hereby GRANTED. Accordingly, the Decision dated April 7, 2005 of the Central
Board of Assessment Appeals in CBAA Case No. M-20 and the Order dated
January 25, 2005 of the LBAA in LBAA Case No. 01-04 dismissing the appeal are
hereby SET ASIDE. We declare the Sasa Port, Davao City and its
buildings EXEMPT from the real estate tax imposed by Davao City. We
declare VOID all the real estate tax assessments issued by Davao City on the
Sasa Port and its buildings.
SO ORDERED.14 (Emphasis in the original)
Additionally, while the petition was pending with the Court of Appeals, the Court of Tax
Appeals issued an Entry of Judgment stating that its July 30, 2007 Decision became final
and executory on February 13, 2008, considering that no appeal to the Supreme Court
had been taken.15
Thereafter, the Court of Appeals dismissed the petition in its December 15, 2008
Decision.16 It held that the Court of Tax Appeals had exclusive jurisdiction to determine
the matter17 and said that the Philippine Ports Authority "should have applied for the
issuance of writ of injunction or prohibition before the Court of Tax Appeals."18 It further
found the petition dismissible on the ground that the Philippine Ports Authority committed
forum shopping, as the petition raised the same facts and issues as in its appeal before
the Court of Tax Appeals.19
Petitioner filed a motion for reconsideration, which the Court of Appeals denied in its
September 11, 2009 Resolution,20 which read, in part:
This Court GRANTS the Motion For Extension Of Time To tile Comment
and NOTES the Comment subsequently tiled within the extended period prayed
for, and DENIESpetitioner's Motion for Reconsideration from the Decision dated
December 15, 2008, dismissing the petition for prohibition and upholding the
authority of the City Government of Davao in taxing, auctioning and selling
petitioner's properties to satisfy the latter's real property tax liabilities.
....
WHEREFORE, the instant Motion for Reconsideration is hereby DENIED.
SO ORDERED.21 (Emphasis in the original)
Thus, the Philippine Ports Authority filed its Petition for Review22 under Rule 45 of the
Rules of Court before this Court against the City of Davao, Sangguniang Panglungsod ng
Davao City, City Mayor of Davao City, City Treasurer of Davao City, City Assessor of
Davao City, and Central Board of Assessment Appeals (collectively, respondents),
assailing the Court of Appeals December 15, 2008 Decision and September 11, 2009
Resolution. Respondents filed their Comment23 to which petitioner filed its Reply.24
Petitioner argues that it did not commit forum shopping, asserting that the only element
of forum shopping present as between the appeals filed before the Court of Tax Appeals
and the Court of Appeals is identity of parties.25 Its arguments regarding the jurisdiction
of the Court of Appeals are inscrutable but appear to maintain that the Court of Appeals
has jurisdiction on the basis of urgency. It also avers that the Court of Appeals erred
when it "ruled, declared and upheld the authority" of respondent City of Davao to tax,
auction, and sell its properties.26 It points out that the Supreme Court has held that as a
government instrumentality, its properties cannot be taxed by local government.27
Respondents insist that forum shopping exists, considering that the elements of litis
pendentia were present when the case was filed with the Court of Appeals.28 On the
question of the propriety of the imposition of tax on petitioner's properties, respondents
claim that there was an error in the Court of Tax Appeals July 30, 2007 Decision. Thus,
while they maintain that this case is not the proper case to rectify the error of the Court
of Tax Appeals, they ask that this Court lay down a jurisprudential pronouncement on the
real property tax treatment of petitioner's properties.29
The issues for resolution by this Court are:
First, whether or not the Court of Appeals had jurisdiction to issue the injunctive relief
prayed for by petitioner Philippine Ports Authority; and
Second, whether or not the petition before the Court of Appeals was properly dismissed
for forum shopping.
This Court denies the Petition.
I jurisdiction, it must have the authority to issue, among others, a writ
In real property tax cases such as this, the remedy of a taxpayer depends on the stage in
which the local government unit is enforcing its authority to impose real property
taxes.30 Moreover, as jurisdiction is conferred by law,31 reference must be made to the
law when determining which court has jurisdiction over a case, in relation to its factual
and procedural antecedents.
Petitioner has failed to cite any law supporting its contention that the Court of Appeals
has jurisdiction over this case. On the other hand, Section 7, paragraph (a)(5) of Republic
Act No. 1125,32 as amended by Republic Act No. 9282,33 provides that the Court of Tax
Appeals has exclusive appellate jurisdiction over:
Section 7. Jurisdiction. - The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
(5) Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real
property originally decided by the provincial or city board of assessment
appeals[.]
The Central Board of Assessment Appeals April 7, 2005 Decision assailed by petitioner
before the Court of Appeals was rendered in the exercise of its appellate jurisdiction over
the real property tax assessment of its properties. Clearly, this falls within the above-
cited provision. Indeed, there is no dispute that this Central Board of Assessment Appeals
decision constitutes one of the cases covered by the Court of Tax Appeals' exclusive
jurisdiction.
Despite the clear wording of the law placing this case within the exclusive appellate
jurisdiction of the Court of Tax Appeals, petitioner insists that the Court of Appeals could
have issued the relief prayed for despite the provisions of Republic Act No. 9282,
considering its urgent need for injunctive relief.34
Petitioner's contention has no legal basis whatsoever and must be rejected. Urgency does
not remove the Central Board of Assessment Appeals decision from the exclusive
appellate jurisdiction of the Court of Tax Appeals. This is particularly true since, as
properly recognized by the Court of Appeals, petitioner could have, and should have,
applied for injunctive relief with the Court of Tax Appeals, which has the power to issue
the preliminary injunction prayed for.35
In City of Manila v. Grecia-Cuerdo,36 this Court expressly recognized the Court of Tax
Appeals' power to determine whether or not there has been grave abuse of discretion in
cases falling within its exclusive appellate jurisdiction and its power to issue writs of
certiorari:
On the strength of the above constitutional provisions, it can be fairly
interpreted that the power of the CTA includes that of determining whether or
not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an interlocutory order in cases
falling within the exclusive appellate jurisdiction of the tax court. It, thus,
follows that the CTA, by constitutional mandate, is vested with jurisdiction to
issue writs of certiorari in these cases.
Indeed, in order for any appellate court, to effectively exercise its appellate
of certiorari. In transferring exclusive jurisdiction over appealed tax cases to the
CTA, it can reasonably be assumed that the law intended to transfer also such
power as is deemed necessary, if not indispensable, in aid of such appellate
jurisdiction. There is no perceivable reason why the transfer should only be
considered as partial, not total.
Consistent with the above pronouncement, this Court has held as early as the
case of J.M. Tuason & Co., Inc. v. Jaramillo, et al. that "if a case may be
appealed to a particular court or judicial tribunal or body, then said court or
judicial tribunal or body has jurisdiction to issue the extraordinary writ of
certiorari, in aid of its appellate jurisdiction." This principle was affirmed in De
Jesus v. Court of Appeals, where the Court stated that "a court may issue a writ
of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to
review, by appeal or writ of error, the final orders or decisions of the lower
court." The rulings in J.M. Tuason and De Jesus were reiterated in the more
recent cases of Galang, Jr. v. Geronimo and Bulilis v. Nuez.
Furthermore, Section 6, Rule 135 of the present Rules of Com1 provides that
when by law, jurisdiction is conferred on a court or judicial officer, all auxiliary
writs, processes and other means necessary to carry it into effect may be
employed by such court or officer.
 If this Court were to sustain petitioners' contention that jurisdiction over
their certioraripetition lies with the CA, this Court would be confirming the
exercise by two judicial bodies, the CA and the CTA, of jurisdiction over basically
the same subject matter — precisely the split-jurisdiction situation which is
anathema to the orderly administration of justice. The Court cannot accept that
such was the legislative motive, especially considering that the law expressly
confers on the CTA, the tribunal with the specialized competence over tax and
tariff matters, the role of judicial review over local tax cases without mention of
any other court that may exercise such power. Thus, the Court agrees with the
ruling of the CA that since appellate jurisdiction over private respondents'
complaint for tax refund is vested in the CTA, it follows that a petition
for certiorari seeking nullification of an interlocutory order issued in the said
case should, likewise, be filed with the same court. To rule otherwise would lead
to an absurd situation where one court decides an appeal in the main case while
another court rules on an incident in the very same case.
Stated differently, it would be somewhat incongruent with the pronounced
judicial abhorrence to split jurisdiction to conclude that the intention of the law
is to divide the authority over a local tax case filed with the RTC by giving to the
CA or this Court jurisdiction to issue a writ of certiorari against interlocutory
orders of the RTC but giving to the CTA the jurisdiction over the appeal from the
decision of the trial court in the same case. It is more in consonance with logic
and legal soundness to conclude that the grant of appellate jurisdiction to the
CTA over tax cases filed in and decided by the RTC carries with it the power to
issue a writ of certiorari when necessary in aid of such appellate jurisdiction.
The supervisory power or jurisdiction of the CTA to issue a writ of certiorari in
aid of its appellate jurisdiction should co-exist with, and be a complement to, its
appellate jurisdiction to review, by appeal, the final orders and decisions of the
RTC, in order to have complete supervision over the acts of the latter.
A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the
subject of the action, and to give effect to the final determination of the appeal.
It carries with it the power to protect that jurisdiction and to make the decisions
of the court thereunder effective. The court, in aid of its appellate jurisdiction,
has authority to control all auxiliary and incidental matters necessary to the
efficient and proper exercise of that jurisdiction. For this purpose, it may, when
necessary, prohibit or restrain the performance of any act which might interfere
with the proper exercise of its rightful jurisdiction in cases pending before it.
Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to
act effectively within such jurisdiction. These should be regarded as powers
which are inherent in its jurisdiction and the court must possess them in order
to enforce its rules of practice and to suppress any abuses of its process and to
defeat any attempted thwarting of such process.37(Citations omitted)
In this case, the Court of Tax Appeals had jurisdiction over petitioner's appeal to resolve
the question of whether or not it was liable for real property tax. To recall, the real
property tax liability was the very reason for the acts which petitioner wanted to have
enjoined. It was, thus, the Court of Tax Appeals, and not the Court of Appeals, that had
the power to preserve the subject of the appeal, to give effect to its final determination,
and, when necessary, to control auxiliary and incidental matters and to prohibit or
restrain acts which might interfere with its exercise of jurisdiction over petitioner's
appeal. Thus, respondents' acts carried out pursuant to the imposition of the real
property tax were also within the jurisdiction of the Court of Tax Appeals.
Even if the law had vested the Court of Appeals with jurisdiction to issue injunctive relief
in real property tax cases such as this, the Court of Appeals was still correct in dismissing
the petition before it. Once a court acquires jurisdiction over a case, it also has the power
to issue all auxiliary writs necessary to maintain and exercise its jurisdiction, to the
exclusion of all other courts.38 Thus, once the Court of Tax Appeals acquired jurisdiction
over petitioner's appeal, the Court of Appeals would have been precluded from taking
cognizance of the case.
II
The rule against forum shopping is violated when a party institutes more than one action
based on the same cause to increase its chances of obtaining a favorable outcome. Thus,
when a party institutes a case while another case is pending, where there is an identity of
parties and an identity of rights asserted and relief prayed for such that judgment in one
case amounts to res judicata in the other, it is guilty of forum shopping.39
To reverse a court determination that a party has violated the rule against forum
shopping, this party must show that one or more of the requirements for forum shopping
does not exist. To this end, petitioner attempts to differentiate the petition filed with the
Court of Appeals from the appeal filed with the Court of Tax Appeals. It argues that the
right asserted before the Court of Appeals is its right to peacefully possess its ports, free
from the threat of losing the properties due to tax liabilities, whereas the right asserted
before the Court of Tax Appeals is its right to be exempt from real property tax, as a
government instrumentality. Petitioner further argues that the reliefs sought from the two
(2) tribunals were not the same—it sought a final relief from payment of real property
taxes on its ports from the Court of Tax Appeals; on the other hand, it sought a
temporary and immediate relief from respondents' acts from the Court of Appeals, while
the issue of taxability was still pending with the Court of Tax Appeals.40
However, even assuming without conceding that the arguments laid down by petitioner
could support its claim that it did not forum shop, this Court cannot accept that it was
what was argued before the Court of Tax Appeals and Court of Appeals, respectively,
without reading the text itself. Whether or not the rights asserted and reliefs prayed for in
the two (2) petitions were different would best determined from a reading of the appeal
and petition themselves.
Unfortunately for petitioner, it submitted only its own arguments. Neither its petition
before the Court of Appeals nor its appeal before the Court of Tax Appeals was attached
to the petition filed with this Court. Without any of these texts, this Court is in no position
to determine that the elements of forum shopping are absent here.
Thus, this Court affirms the Court of Appeals' finding that the rule against forum shopping
was violated when petitioner filed its Petition for Certiorari despite its pending appeal
before the Court of Tax Appeals.41
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Court of Appeals
December 15, 2008 Decision and September 11, 2009 Resolution in CA-G.R. SP No.
00735-MIN are hereby AFFIRMED.
SO ORDERED.
Velasco, Jr., (Chairperson), Bersamin, Martires, and Gesmundo, JJ., concur.
 EN BANC
G.R. No. 198756 January 13, 2015
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION,
METROPOLITAN BANK & TRUST COMPANY, PHILIPPINE BANK OF
COMMUNICATIONS, PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS
BANK AND PLANTERS DEVELOPMENT BANK, Petitioners,
RIZAL COMMERCIAL BANKING CORPORATION AND RCBC CAPITAL
CORPORATION, Petitioners-Intervenors,
CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-Intervenor,
vs.
REPUBLIC OF THE PHILIPPINES, THE COMMISSIONER OF INTERNAL
REVENUE, BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE,
DEPARTMENT OF FINANCE, THE NATIONAL TREASURER AND BUREAU
OF TREASURY, Respondent.
DECISION
LEONEN, J.:
The case involves the proper tax treatment of the discount or interest income
arising from the ₱35 billion worth of 10-year zero-coupon treasury bonds issued
by the Bureau of Treasury on October 18, 2001 (denominated as the Poverty
Eradication and Alleviation Certificates or the PEA Ce Bonds by the Caucus of
Development NGO Networks).
On October 7, 2011, the Commissioner of Internal Revenue issued BIR Ruling
No. 370-20111 (2011 BIR Ruling), declaring that the PEACe Bonds being deposit
substitutes are subject to the 20% final withholding tax. Pursuant to this ruling,
the Secretary of Finance directed the Bureau of Treasury to withhold a 20% final
tax from the face value of the PEACe Bonds upon their payment at maturity on
October 18, 2011.
This is a petition for certiorari, prohibition and/or mandamus 2 filed by petitioners
under Rule 65 of the Rules of Court seeking to:
a. ANNUL Respondent BIR's Ruling No. 370-2011 dated 7 October 2011
[and] other related rulings issued by BIR of similar tenor and import, for
being unconstitutional and for having been issued without jurisdiction or
with grave abuse of discretion amounting to lack or· excess of
jurisdiction ... ;
b. PROHIBIT Respondents, particularly the BTr; from withholding or
collecting the 20% FWT from the payment of the face value of the
Government Bonds upon their maturity;
c. COMMAND Respondents, particularly the BTr, to pay the full amount
of the face value of the Government Bonds upon maturity ... ; and
d. SECURE a temporary restraining order (TRO), and subsequently a
writ of preliminary injunction, enjoining Respondents, particularly the BIR
and the BTr, from withholding or collecting 20% FWT on the
Government Bonds and the respondent BIR from enforcing the assailed
2011 BIR Ruling, as well asother related rulings issued by the BIR of
similar tenor and import, pending the resolution by [the court] of the
merits of [the] Petition.3
Factual background
By letter4 dated March 23, 2001, the Caucus of Development NGO Networks
(CODE-NGO) "with the assistance of its financial advisors, Rizal Commercial
Banking Corp. ("RCBC"), RCBC Capital Corp. ("RCBC Capital"), CAPEX Finance
and Investment Corp. ("CAPEX") and SEED Capital Ventures, Inc.
(SEED),"5 requested an approval from the Department of Finance for the
issuance by the Bureau of Treasury of 10-year zerocoupon Treasury Certificates
(T-notes).6 The T-notes would initially be purchased by a special purpose vehicle
on behalf of CODE-NGO, repackaged and sold at a premium to investors as the
PEACe Bonds.7 The net proceeds from the sale of the Bonds"will be used to
endow a permanent fund (Hanapbuhay® Fund) to finance meritorious activities
and projects of accredited non-government organizations (NGOs) throughout the
country."8
Prior to and around the time of the proposal of CODE-NGO, other proposals for
the issuance of zero-coupon bonds were also presented by banks and financial
institutions, such as First Metro Investment Corporation (proposal dated March 1,
2001),9 International Exchange Bank (proposal dated July 27, 2000), 10 Security
Bank Corporation and SB Capital Investment Corporation (proposal dated July
25, 2001),11 and ATR-Kim Eng Fixed Income, Inc. (proposal dated August 25,
1999).12 "[B]oth the proposals of First Metro Investment Corp. and ATR-Kim Eng
Fixed Income indicate that the interest income or discount earned on the
proposed zerocoupon bonds would be subject to the prevailing withholding tax."13
A zero-coupon bondis a bond bought at a price substantially lower than its face
value (or at a deep discount), with the face value repaid at the time of
maturity.14 It does not make periodic interest payments, or have socalled
"coupons," hence the term zero-coupon bond.15 However, the discount to face
value constitutes the return to the bondholder.16
On May 31, 2001, the Bureau of Internal Revenue, in reply to CODENGO’s
letters dated May 10, 15, and 25, 2001, issued BIR Ruling No. 020-200117 on the
tax treatment of the proposed PEACe Bonds. BIR Ruling No. 020-2001, signed
by then Commissioner ofInternal Revenue René G. Bañez confirmed that the
PEACe Bonds would not be classified as deposit substitutes and would not be
subject to the corresponding withholding tax:
Thus, to be classified as "deposit substitutes", the borrowing of funds must be
obtained from twenty (20) or more individuals or corporate lenders at any one
time. In the light of your representation that the PEACe Bonds will be issued only
to one entity, i.e., Code NGO, the same shall not be considered as "deposit
substitutes" falling within the purview of the above definition. Hence, the
withholding tax on deposit substitutes will not apply.18 (Emphasis supplied)
The tax treatment of the proposed PEACe Bonds in BIR Ruling No. 020-2001
was subsequently reiterated in BIR Ruling No. 035-200119 dated August 16, 2001
and BIR Ruling No. DA-175-0120 dated September 29, 2001 (collectively, the
2001 Rulings). In sum, these rulings pronounced that to be able to determine
whether the financial assets, i.e., debt instruments and securities are deposit
substitutes, the "20 or more individual or corporate lenders" rule must apply.
Moreover, the determination of the phrase "at any one time" for purposes of
determining the "20 or more lenders" is to be determined at the time of the
original issuance. Such being the case, the PEACe Bonds were not to be treated
as deposit substitutes.
Meanwhile, in the memorandum21 dated July 4, 2001, Former Treasurer Eduardo
Sergio G. Edeza (Former Treasurer Edeza) questioned the propriety of issuing
the bonds directly to a special purpose vehicle considering that the latter was not
a Government Securities Eligible Dealer (GSED).22 Former Treasurer Edeza
recommended that the issuance of the Bonds "be done through the
ADAPS"23 and that CODE-NGO "should get a GSED to bid in [sic] its behalf."24
Subsequently, in the notice to all GSEDs entitled Public Offering of Treasury
Bonds25 (Public Offering) dated October 9, 2001, the Bureau of Treasury
announced that "₱30.0B worth of 10-year Zero[-] Coupon Bonds [would] be
auctioned on October 16, 2001[.]"26 The notice stated that the Bonds "shall be
issued to not morethan 19 buyers/lenders hence, the necessity of a manual
auction for this maiden issue."27 It also required the GSEDs to submit their bids
not later than 12 noon on auction date and to disclose in their bid submissions
the names of the institutions bidding through them to ensure strict compliance
with the 19 lender limit.28 Lastly, it stated that "the issue being limitedto 19 lenders
and while taxable shall not be subject to the 20% final withholding [tax]."29
On October 12, 2001, the Bureau of Treasury released a memo30 on the "Formula
for the Zero-Coupon Bond." The memo stated inpart that the formula (in
determining the purchase price and settlement amount) "is only applicable to the
zeroes that are not subject to the 20% final withholding due to the 19
buyer/lender limit."31
A day before the auction date or on October 15, 2001, the Bureau of Treasury
issued the "Auction Guidelines for the 10-year Zero-Coupon Treasury Bond to be
Issued on October 16, 2001" (Auction Guidelines).32 The Auction Guidelines
reiterated that the Bonds to be auctioned are "[n]ot subject to 20% withholding
tax as the issue will be limited to a maximum of 19 lenders in the primary market
(pursuant to BIR Revenue Regulation No. 020 2001)."33The Auction Guidelines,
for the first time, also stated that the Bonds are "[e]ligible as liquidity reserves
(pursuant to MB Resolution No. 1545 dated 27 September 2001)[.]"34
On October 16, 2001, the Bureau of Treasury held an auction for the 10-year
zero-coupon bonds.35 Also on the same date, the Bureau of Treasury issued
another memorandum36 quoting excerpts of the ruling issued by the Bureau of
Internal Revenue concerning the Bonds’ exemption from 20% final withholding
tax and the opinion of the Monetary Board on reserve eligibility.37
During the auction, there were 45 bids from 15 GSEDs.38 The bidding range was
very wide, from as low as 12.248% to as high as 18.000%.39 Nonetheless, the
Bureau of Treasury accepted the auction results.40 The cut-off was at 12.75%.41
After the auction, RCBC which participated on behalf of CODE-NGO was
declared as the winning bidder having tendered the lowest bids.42 Accordingly, on
October 18, 2001, the Bureau of Treasury issued ₱35 billion worth of Bonds at
yield-to-maturity of 12.75% to RCBC for approximately ₱10.17 billion,43 resulting
in a discount of approximately ₱24.83 billion.
Also on October 16, 2001, RCBC Capital entered into an underwriting
Agreement44 with CODE-NGO, whereby RCBC Capital was appointed as the
Issue Manager and Lead Underwriter for the offering of the PEACe
Bonds.45RCBC Capital agreed to underwrite46 on a firm basis the offering,
distribution and sale of the 35 billion Bonds at the price of
₱11,995,513,716.51.47 In Section 7(r) of the underwriting agreement, CODE-NGO
represented that "[a]ll income derived from the Bonds, inclusive of premium on
redemption and gains on the trading of the same, are exempt from all forms of
taxation as confirmed by Bureau of Internal Revenue (BIR) letter rulings dated 31
May 2001 and 16 August 2001, respectively."48
RCBC Capital sold the Government Bonds in the secondary market for an issue
price of ₱11,995,513,716.51. Petitioners purchased the PEACe Bonds on
different dates.49
BIR rulings
On October 7, 2011, "the BIR issued the assailed 2011 BIR Ruling imposing a
20% FWT on the Government Bonds and directing the BTr to withhold said final
tax at the maturity thereof, [allegedly without] consultation with Petitioners as
bond holders, and without conducting any hearing."50
"It appears that the assailed 2011 BIR Ruling was issued in response to a query
of the Secretary of Finance on the proper tax treatment of the discount or interest
income derived from the Government Bonds."51 The Bureau of Internal Revenue,
citing three (3) of its rulings rendered in 2004 and 2005, namely: BIR Ruling No.
007-0452 dated July 16, 2004; BIR Ruling No. DA-491-0453 dated September 13,
2004; and BIR Ruling No. 008-0554 dated July 28, 2005, declared the following:
The Php 24.3 billion discount on the issuance of the PEACe Bonds should be
subject to 20% Final Tax on interest income from deposit substitutes. It is now
settled that all treasury bonds (including PEACe Bonds), regardless of the
number of purchasers/lenders at the time of origination/issuance are considered
deposit substitutes. In the case of zero-coupon bonds, the discount (i.e.
difference between face value and purchase price/discounted value of the bond)
is treated as interest income of the purchaser/holder. Thus, the Php 24.3 interest
income should have been properly subject to the 20% Final Tax as provided in
Section 27(D)(1) of the Tax Code of 1997. . . .
....
However, at the time of the issuance of the PEACe Bonds in 2001, the BTr was
not able tocollect the final tax on the discount/interest income realized by RCBC
as a result of the 2001 Rulings. Subsequently, the issuance of BIR Ruling No.
007-04 dated July 16, 2004 effectively modifies and supersedes the 2001
Rulings by stating that the [1997] Tax Code is clear that the "term public means
borrowing from twenty (20) or more individual or corporate lenders at any one
time." The word "any" plainly indicates that the period contemplated is the entire
term of the bond, and not merely the point of origination or issuance. . . . Thus,
by taking the PEACe bonds out of the ambit of deposits [sic] substitutes and
exempting it from the 20% Final Tax, an exemption in favour of the PEACe
Bonds was created when no such exemption is found in the law.55
On October 11, 2011, a "Memo for Trading Participants No. 58-2011 was issued
by the Philippine Dealing System Holdings Corporation and Subsidiaries ("PDS
Group"). The Memo provides that in view of the pronouncement of the DOF and
the BIR on the applicability of the 20% FWT on the Government Bonds, no
transferof the same shall be allowed to be recorded in the Registry of Scripless
Securities ("ROSS") from 12 October 2011 until the redemption payment date on
18 October 2011. Thus, the bondholders of record appearing on the ROSS as of
18 October 2011, which include the Petitioners, shall be treated by the BTr asthe
beneficial owners of such securities for the relevant [tax] payments to be
imposed thereon."56
On October 17, 2011, replying to anurgent query from the Bureau of Treasury,
the Bureau of Internal Revenue issued BIR Ruling No. DA 378-201157 clarifying
that the final withholding tax due on the discount or interest earned on the
PEACe Bonds should "be imposed and withheld not only on RCBC/CODE NGO
but also [on] ‘all subsequent holders of the Bonds.’"58
On October 17, 2011, petitioners filed a petition for certiorari, prohibition, and/or
mandamus (with urgent application for a temporary restraining order and/or writ
of preliminary injunction)59 before this court.
On October 18, 2011, this court issued a temporary restraining order
(TRO)60 "enjoining the implementation of BIR Ruling No. 370-2011 against the
[PEACe Bonds,] . . . subject to the condition that the 20% final withholding tax on
interest income there from shall be withheld by the petitioner banks and placed in
escrow pending resolution of [the] petition."61
On October 28, 2011, RCBC and RCBC Capital filed a motion for leave of court
to intervene and to admit petition-in-intervention62 dated October 27, 2011, which
was granted by this court on November 15, 2011.63
Meanwhile, on November 9, 2011, petitioners filed their "Manifestation with
Urgent Ex Parte Motion to Direct Respondents to Comply with the TRO." 64 They
alleged that on the same day that the temporary restraining order was issued, the
Bureau of Treasury paid to petitioners and other bondholders the amounts
representing the face value of the Bonds, net however of the amounts
corresponding to the 20% final withholding tax on interest income, and that the
Bureau of Treasury refused to release the amounts corresponding to the 20%
final withholding tax.65 On November 15, 2011, this court directed respondents to:
"(1) SHOW CAUSE why they failed to comply with the October 18, 2011
resolution; and (2) COMPLY with the Court’s resolution in order that petitioners
may place the corresponding funds in escrow pending resolution of the petition."66
On the same day, CODE-NGO filed a motion for leave to intervene (and to admit
attached petition-in-intervention with comment on the petitionin-intervention of
RCBC and RCBC Capital).67 The motion was granted by this court on November
22, 2011.68
On December 1, 2011, public respondents filed their compliance.69 They
explained that: 1) "the implementation of [BIR Ruling No. 370-2011], which has
already been performed on October 18, 2011 with the withholding of the 20%
final withholding tax on the face value of the PEACe bonds, is already fait
accompli . . . when the Resolution and TRO were served to and received by
respondents BTr and National Treasurer [on October 19, 2011]";70 and 2) the
withheld amount has ipso facto become public funds and cannot be disbursed or
released to petitioners without congressional appropriation.71 Respondents further
aver that"[i]nasmuch as the . . . TRO has already become moot . . . the condition
attached to it, i.e., ‘that the 20% final withholding tax on interest income
therefrom shall be withheld by the banks and placed in escrow . . .’has also been
rendered moot[.]"72
On December 6, 2011, this court noted respondents' compliance.73
On February 22, 2012, respondents filed their consolidated comment74 on the
petitions-in-intervention filed by RCBC and RCBC Capital and On November 27,
2012, petitioners filed their "Manifestation with Urgent Reiterative Motion (To
Direct Respondents to Comply with the Temporary Restraining Order)."75
On December 4, 2012, this court: (a) noted petitioners’ manifestation with urgent
reiterative motion (to direct respondents to comply with the temporary restraining
order); and (b) required respondents to comment thereon.76
Respondents’ comment77 was filed on April 15,2013, and petitioners filed their
reply78 on June 5, 2013.
Issues
The main issues to be resolved are:
I. Whether the PEACe Bonds are "deposit substitutes" and thus subject
to 20% final withholding tax under the 1997 National Internal Revenue
Code. Related to this question is the interpretation of the phrase
"borrowing from twenty (20) or more individual or corporate lenders at
any one time" under Section 22(Y) of the 1997 National Internal
Revenue Code, particularly on whether the reckoning of the 20 lenders
includes trading of the bonds in the secondary market; and
II. If the PEACe Bonds are considered "deposit substitutes," whether the
government or the Bureau of Internal Revenue is estopped from
imposing and/or collecting the 20% final withholding tax from the face
value of these Bonds
a. Will the imposition of the 20% final withholding tax violate the
non-impairment clause of the Constitution?
b. Will it constitute a deprivation of property without due process
of law?
c. Will it violate Section 245 of the 1997 National Internal
Revenue Code on non-retroactivity of rulings?
Arguments of petitioners, RCBC and RCBC
Capital, and CODE-NGO
Petitioners argue that "[a]s the issuer of the Government Bonds acting through
the BTr, the Government is obligated . . . to pay the face value amount of Ph₱35
Billion upon maturity without any deduction whatsoever." 79 They add that "the
Government cannot impair the efficacy of the [Bonds] by arbitrarily, oppressively
and unreasonably imposing the withholding of 20% FWT upon the [Bonds] a
mere eleven (11) days before maturity and after several, consistent categorical
declarations that such bonds are exempt from the 20% FWT, without violating
due process"80 and the constitutional principle on non-impairment of
contracts.81 Petitioners aver that at the time they purchased the Bonds, they had
the right to expect that they would receive the full face value of the Bonds upon
maturity, in view of the 2001 BIR Rulings.82 "[R]egardless of whether or not the
2001 BIR Rulings are correct, the fact remains that [they] relied [on] good faith
thereon."83
At any rate, petitioners insist that the PEACe Bonds are not deposit substitutes
as defined under Section 22(Y) of the 1997 National Internal Revenue Code
because there was only one lender (RCBC) to whom the Bureau of Treasury
issued the Bonds.84 They allege that the 2004, 2005, and 2011 BIR Rulings
"erroneously interpreted that the number of investors that participate in the
‘secondary market’ is the determining factor in reckoning the existence or non-
existence of twenty (20) or more individual or corporate lenders."85 Furthermore,
they contend that the Bureau of Internal Revenue unduly expanded the definition
of deposit substitutes under Section 22 of the 1997 National Internal Revenue
Code in concluding that "the mere issuance of government debt instruments and
securities is deemed as falling within the coverage of ‘deposit
substitutes[.]’"86 Thus, "[t]he 2011 BIR Ruling clearly amount[ed] to an
unauthorized act of administrative legislation[.]"87
Petitioners further argue that their income from the Bonds is a "trading gain,"
which is exempt from income tax.88They insist that "[t]hey are not lenders whose
income is considered as ‘interest income or yield’ subject to the 20% FWT under
Section 27 (D)(1) of the [1997 National Internal Revenue Code]"89 because they
"acquired the Government Bonds in the secondary or tertiary market."90
Even assuming without admitting that the Government Bonds are deposit
substitutes, petitioners argue that the collection of the final tax was barred by
prescription.91 They point out that under Section 7 of DOF Department Order No.
141-95,92 the final withholding tax "should have been withheld at the time of their
issuance[.]"93 Also, under Section 203 of the 1997 National Internal Revenue
Code, "internal revenuetaxes, such as the final tax, [should] be assessed within
three (3) years after the last day prescribed by law for the filing of the return."94
Moreover, petitioners contend that the retroactive application of the 2011 BIR
Ruling without prior notice to them was in violation of their property rights,95 their
constitutional right to due process96 as well as Section 246 of the 1997 National
Internal Revenue Code on non-retroactivity of rulings.97 Allegedly, it would also
have "an adverse effect of colossal magnitude on the investors, both localand
foreign, the Philippine capital market, and most importantly, the country’s
standing in the international commercial community."98 Petitioners explained that
"unless enjoined, the government’s threatened refusal to pay the full value of the
Government Bonds will negatively impact on the image of the country in terms of
protection for property rights (including financial assets), degree of legal
protection for lender’s rights, and strength of investor protection."99 They cited the
country’s ranking in the World Economic Forum: 75th in the world in its 2011–
2012 Global Competitiveness Index, 111th out of 142 countries worldwide and
2nd to the last among ASEAN countries in terms of Strength of Investor
Protection, and 105th worldwide and last among ASEAN countries in terms of
Property Rights Index and Legal Rights Index.100 It would also allegedly "send a
reverberating message to the whole world that there is no certainty, predictability,
and stability of financial transactions in the capital markets[.]"101 "[T]he integrity of
Government-issued bonds and notes will be greatly shattered and the credit of
the Philippine Government will suffer"102 if the sudden turnaround of the
government will be allowed,103 and it will reinforce "investors’ perception that the
level of regulatory risk for contracts entered into by the Philippine Government is
high,"104 thus resulting in higher interestrate for government-issued debt
instruments and lowered credit rating.105
Petitioners-intervenors RCBC and RCBC Capital contend that respondent
Commissioner of Internal Revenue "gravely and seriously abused her discretion
in the exercise of her rule-making power"106 when she issued the assailed 2011
BIR Ruling which ruled that "all treasury bonds are ‘deposit substitutes’
regardless of the number of lenders, in clear disregard of the requirement of
twenty (20)or more lenders mandated under the NIRC."107 They argue that "[b]y
her blanket and arbitrary classification of treasury bonds as deposit substitutes,
respondent CIR not only amended and expanded the NIRC, but effectively
imposed a new tax on privately-placed treasury bonds."108Petitioners-intervenors
RCBC and RCBC Capital further argue that the 2011 BIR Ruling will cause
substantial impairment of their vested rights109 under the Bonds since the ruling
imposes new conditions by "subjecting the PEACe Bonds to the twenty percent
(20%) final withholding tax notwithstanding the fact that the terms and conditions
thereof as previously represented by the Government, through respondents BTr
and BIR, expressly state that it is not subject to final withholding tax upon their
maturity."110 They added that "[t]he exemption from the twenty percent (20%) final
withholding tax [was] the primary inducement and principal consideration for
[their] participat[ion] in the auction and underwriting of the PEACe Bonds."111
Like petitioners, petitioners-intervenors RCBC and RCBC Capital also contend
that respondent Commissioner of Internal Revenue violated their rights to due
process when she arbitrarily issued the 2011 BIR Ruling without prior notice and
hearing, and the oppressive timing of such ruling deprived them of the
opportunity to challenge the same.112
Assuming the 20% final withholding tax was due on the PEACe Bonds,
petitioners-intervenors RCBC and RCBC Capital claim that respondents Bureau
of Treasury and CODE-NGO should be held liable "as [these] parties explicitly
represented . . . that the said bonds are exempt from the final withholding tax."113
Finally, petitioners-intervenors RCBC and RCBC Capital argue that "the
implementation of the [2011 assailed BIR Ruling and BIR Ruling No. DA 378-
2011] will have pernicious effects on the integrity of existing securities, which is
contrary to the State policies of stabilizing the financial system and of developing
capital markets."114
For its part, CODE-NGO argues that: (a) the 2011 BIR Ruling and BIR Ruling No.
DA 378-2011 are "invalid because they contravene Section 22(Y) of the 1997
[NIRC] when the said rulings disregarded the applicability of the ‘20 or more
lender’ rule to government debt instruments"[;]115 (b) "when [it] sold the PEACe
Bonds in the secondary market instead of holding them until maturity, [it] derived
. . . long-term trading gain[s], not interest income, which [are] exempt . . . under
Section 32(B)(7)(g) of the 1997 NIRC"[;]116 (c) "the tax exemption privilege relating
to the issuance of the PEACe Bonds . . . partakes of a contractual commitment
granted by the Government in exchange for a valid and material consideration
[i.e., the issue price paid and savings in borrowing cost derived by the
Government,] thus protected by the non-impairment clause of the 1987
Constitution"[;]117 and (d) the 2004, 2005, and 2011 BIR Rulings "did not validly
revoke the 2001 BIR Rulings since no notice of revocation was issued to [it],
RCBC and [RCBC Capital] and petitioners[-bondholders], nor was there any BIR
administrative guidance issued and published[.]"118CODE-NGO additionally
argues that impleading it in a Rule 65 petition was improper because: (a) it
involves determination of a factual question;119 and (b) it is premature and states
no cause of action as it amounts to an anticipatory third-party claim.120
Arguments of respondents
Respondents argue that petitioners’ direct resort to this court to challenge the
2011 BIR Ruling violates the doctrines of exhaustion of administrative remedies
and hierarchy ofcourts, resulting in a lack of cause of action that justifies the
dismissal of the petition.121 According to them, "the jurisdiction to review the
rulings of the [Commissioner of Internal Revenue], after the aggrieved party
exhausted the administrative remedies, pertains to the Court of Tax
Appeals."122 They point out that "a case similar to the present Petition was [in fact]
filed with the CTA on October 13, 2011[,] [docketed as] CTA Case No. 8351
[and] entitled, ‘Rizal Commercial Banking Corporation and RCBC Capital
Corporation vs. Commissioner of Internal Revenue, et al.’"123
Respondents further take issue on the timeliness of the filing of the petition and
petitions-in-intervention.124 They argue that under the guise of mainly assailing the
2011 BIR Ruling, petitioners are indirectly attacking the 2004 and 2005 BIR
Rulings, of which the attack is legally prohibited, and the petition insofar as it
seeks to nullify the 2004 and 2005 BIR Rulings was filed way out of time
pursuant to Rule 65, Section 4.125
Respondents contend that the discount/interest income derived from the PEACe
Bonds is not a trading gain but interest income subject to income tax.126 They
explain that "[w]ith the payment of the Ph₱35 Billion proceeds on maturity of the
PEACe Bonds, Petitioners receive an amount of money equivalent to about
Ph₱24.8 Billion as payment for interest. Such interest is clearly an income of the
Petitioners considering that the same is a flow of wealth and not merely a return
of capital – the capital initially invested in the Bonds being approximately
Ph₱10.2 Billion[.]"127
Maintaining that the imposition of the 20% final withholding tax on the PEACe
Bonds does not constitute an impairment of the obligations of contract,
respondents aver that: "The BTr has no power to contractually grant a tax
exemption in favour of Petitioners thus the 2001 BIR Rulings cannot be
considered a material term of the Bonds"[;]128 "[t]here has been no change in the
laws governing the taxability of interest income from deposit substitutes and said
laws are read into every contract"[;]129 "[t]he assailed BIR Rulings merely interpret
the term "deposit substitute" in accordance with the letter and spirit of the Tax
Code"[;]130 "[t]he withholding of the 20% FWT does not result in a default by the
Government as the latter performed its obligations to the bondholders in
full"[;]131 and "[i]f there was a breach of contract or a misrepresentation it was
between RCBC/CODE-NGO/RCBC Cap and the succeeding purchasers of the
PEACe Bonds."132
Similarly, respondents counter that the withholding of "[t]he 20% final withholding
tax on the PEACe Bonds does not amount to a deprivation of property without
due process of law."133 Their imposition of the 20% final withholding tax is not
arbitrary because they were only performing a duty imposed by law;134 "[t]he 2011
BIR Ruling is aninterpretative rule which merely interprets the meaning of deposit
substitutes [and upheld] the earlier construction given to the termby the 2004 and
2005 BIR Rulings."135 Hence, respondents argue that "there was no need to
observe the requirements of notice, hearing, and publication[.]"136
Nonetheless, respondents add that "there is every reason to believe that
Petitioners — all major financial institutions equipped with both internal and
external accounting and compliance departments as wellas access to both
internal and external legal counsel; actively involved in industry organizations
such as the Bankers Association of the Philippines and the Capital Market
Development Council; all actively taking part in the regular and special debt
issuances of the BTr and indeed regularly proposing products for issue by BTr —
had actual notice of the 2004 and 2005 BIR Rulings."137 Allegedly, "the sudden
and drastic drop — including virtually zero trading for extended periods of six
months to almost a year — in the trading volume of the PEACe Bonds after the
release of BIR Ruling No. 007-04 on July 16, 2004 tend to indicate that market
participants, including the Petitioners herein, were aware of the ruling and its
consequences for the PEACe Bonds."138
Moreover, they contend that the assailed 2011 BIR Ruling is a valid exercise of
the Commissioner of Internal Revenue’s rule-making power;139 that it and the
2004 and 2005 BIR Rulings did not unduly expand the definition of deposit
substitutes by creating an unwarranted exception to the requirement of having 20
or more lenders/purchasers;140 and the word "any" in Section 22(Y) of the National
Internal Revenue Code plainly indicates that the period contemplated is the
entire term of the bond and not merely the point of origination or issuance.141
Respondents further argue that a retroactive application of the 2011 BIR Ruling
will not unjustifiably prejudice petitioners.142 "[W]ith or without the 2011 BIR
Ruling, Petitioners would be liable topay a 20% final withholding tax just the
same because the PEACe Bonds in their possession are legally in the nature of
deposit substitutes subject to a 20% final withholding tax under the
NIRC."143 Section 7 of DOF Department Order No. 141-95 also provides that
incomederived from Treasury bonds is subject to the 20% final withholding
tax.144 "[W]hile revenue regulations as a general rule have no retroactive effect, if
the revocation is due to the fact that the regulation is erroneous or contrary to
law, such revocation shall have retroactive operation as to affect past
transactions, because a wrong construction of the law cannot give rise to a
vested right that can be invoked by a taxpayer."145
Finally, respondents submit that "there are a number of variables and factors
affecting a capital market."146 "[C]apital market itself is inherently
unstable."147 Thus, "[p]etitioners’ argument that the 20% final withholding tax . . .
will wreak havoc on the financial stability of the country is a mere supposition that
is not a justiciable issue."148
On the prayer for the temporary restraining order, respondents argue that this
order "could no longer be implemented [because] the acts sought to be enjoined
are already fait accompli."149 They add that "to disburse the funds withheld to the
Petitioners at this time would violate Section 29[,] Article VI of the Constitution
prohibiting ‘money being paid out of the Treasury except in pursuance of an
appropriation made by law[.]’"150 "The remedy of petitioners is to claim a tax
refund under Section 204(c) of the Tax Code should their position be upheld by
the Honorable Court."151
Respondents also argue that "the implementation of the TRO would violate
Section 218 of the Tax Code in relation to Section 11 of Republic Act No. 1125
(as amended by Section 9 of Republic Act No. 9282) which prohibits courts,
except the Court of Tax Appeals, from issuing injunctions to restrain the
collection of any national internal revenue tax imposed by the Tax Code."152
Summary of arguments
In sum, petitioners and petitioners-intervenors, namely, RCBC, RCBC Capital,
and CODE-NGO argue that:
1. The 2011 BIR Ruling is ultra vires because it is contrary to the 1997
National Internal Revenue Code when it declared that all government
debt instruments are deposit substitutes regardless of the 20-lender rule;
and
2. The 2011 BIR Ruling cannot be applied retroactively because:
a) It will violate the contract clause;
 ● It constitutes a unilateral amendment of a material term (tax
exempt status) in the Bonds, represented by the government as
an inducement and important consideration for the purchase of
the Bonds;
b) It constitutes deprivation ofproperty without due process
because there was no prior notice to bondholders and hearing
and publication;
c) It violates the rule on non-retroactivity under the 1997
National Internal Revenue Code;
d) It violates the constitutional provision on supporting activities
of non-government organizations and development of the
capital market; and
e) The assessment had already prescribed.
Respondents counter that:
1) Respondent Commissioner of Internal Revenue did not act with grave abuse
of discretion in issuing the challenged 2011 BIR Ruling:
a. The 2011 BIR Ruling, being an interpretative rule, was issued by
virtue of the Commissioner of Internal Revenue’s power to interpret the
provisions of the 1997 National Internal Revenue Code and other tax
laws;
b. Commissioner of Internal Revenue merely restates and confirms the
interpretations contained in previously issued BIR Ruling Nos. 007-2004,
DA-491-04,and 008-05, which have already effectively abandoned or
revoked the 2001 BIR Rulings;
c. Commissioner of Internal Revenue is not bound by his or her
predecessor’s rulings especially when the latter’s rulings are not in
harmony with the law; and
d. The wrong construction of the law that the 2001 BIR Rulings have
perpetrated cannot give rise to a vested right. Therefore, the 2011 BIR
Ruling can be given retroactive effect.
2) Rule 65 can be resorted to only if there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law:
a. Petitioners had the basic remedy offiling a claim for refund of the 20% final
withholding tax they allege to have been wrongfully collected; and
b. Non-observance of the doctrine of exhaustion of administrative remedies and
of hierarchy of courts.
Court’s ruling
Procedural Issues
Non-exhaustion of
administrative remedies proper
Under Section 4 of the 1997 National Internal Revenue Code, interpretative
rulings are reviewable by the Secretary of Finance.
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. -The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner, subject
to review by the Secretary of Finance. (Emphasis supplied)
Thus, it was held that "[i]f superior administrative officers [can] grant the relief
prayed for, [then] special civil actions are generally not entertained."153 The
remedy within the administrative machinery must be resorted to first and pursued
to its appropriate conclusion before the court’s judicial power can be sought.154
Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of
administrative remedies:
[The doctrine of exhaustion of administrative remedies] is a relative one and its
flexibility is called upon by the peculiarity and uniqueness of the factual and
circumstantial settings of a case. Hence, it is disregarded (1) when there is a
violation of due process, (2) when the issue involved is purely a legal
question,155 (3) when the administrative action is patently illegal amounting to lack
or excess of jurisdiction,(4) when there is estoppel on the part of the
administrative agency concerned,(5) when there is irreparable injury, (6) when
the respondent is a department secretary whose acts as an alter ego of the
President bears the implied and assumed approval of the latter, (7) when to
require exhaustion of administrative remedies would be unreasonable, (8) when
it would amount to a nullification of a claim, (9) when the subject matter is a
private land in land case proceedings, (10) when the rule does not provide a
plain, speedy and adequate remedy, (11) when there are circumstances
indicating the urgency of judicial intervention.156 (Emphasis supplied, citations
omitted)
The exceptions under (2) and (11)are present in this case. The question involved
is purely legal, namely: (a) the interpretation of the 20-lender rule in the definition
of the terms public and deposit substitutes under the 1997 National Internal
Revenue Code; and (b) whether the imposition of the 20% final withholding tax
on the PEACe Bonds upon maturity violates the constitutional provisions on non-
impairment of contracts and due process. Judicial intervention is likewise urgent
with the impending maturity of the PEACe Bonds on October 18, 2011.
The rule on exhaustion of administrative remedies also finds no application when
the exhaustion will result in an exercise in futility.157
In this case, an appeal to the Secretary of Finance from the questioned 2011 BIR
Ruling would be a futile exercise because it was upon the request of the
Secretary of Finance that the 2011 BIR Ruling was issued by the Bureau of
Internal Revenue. It appears that the Secretary of Finance adopted the
Commissioner of Internal Revenue’s opinions as his own.158 This position was in
fact confirmed in the letter159 dated October 10, 2011 where he ordered the
Bureau of Treasury to withhold the amount corresponding to the 20% final
withholding tax on the interest or discounts allegedly due from the bondholders
on the strength of the 2011 BIR Ruling. Doctrine on hierarchy of courts
We agree with respondents that the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The
questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in
connection with the implementation of the 1997 National Internal Revenue Code
on the taxability of the interest income from zero-coupon bonds issued by the
government.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as
amended by Republic Act No. 9282,160such rulings of the Commissioner of
Internal Revenue are appealable to that court, thus:
SEC. 7.Jurisdiction.- The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;
....
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party
adversely affected by a decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an appeal
with the CTA within thirty (30) days after the receipt of such decision or rulingor
after the expiration of the period fixed by law for action as referred toin Section
7(a)(2) herein.
....
SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding
involving matters arising under the National Internal Revenue Code, the Tariff
and Customs Code or the Local Government Code shall be maintained, except
as herein provided, until and unless an appeal has been previously filed with the
CTA and disposed of in accordance with the provisions of this Act.
In Commissioner of Internal Revenue v. Leal,161 citing Rodriguez v.
Blaquera,162 this court emphasized the jurisdiction of the Court of Tax Appeals
over rulings of the Bureau of Internal Revenue, thus:
While the Court of Appeals correctly took cognizance of the petition for certiorari,
however, let it be stressed that the jurisdiction to review the rulings of the
Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to
the RTC.
The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or
opinions of the Commissioner implementing the Tax Code on the taxability of
pawnshops.. . .
....
Such revenue orders were issued pursuant to petitioner's powers under Section
245 of the Tax Code, which states:
"SEC. 245. Authority of the Secretary of Finance to promulgate rules and
regulations. — The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the effective
enforcement of the provisions of this Code.
The authority of the Secretary of Finance to determine articles similar or
analogous to those subject to a rate of sales tax under certain category
enumerated in Section 163 and 165 of this Code shall be without prejudice to the
power of the Commissioner of Internal Revenue to make rulings or opinions in
connection with the implementation of the provisionsof internal revenue laws,
including ruling on the classification of articles of sales and similar purposes."
(Emphasis in the original)
....
The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:
"Plaintiff maintains that this is not an appeal from a ruling of the Collector of
Internal Revenue, but merely an attempt to nullify General Circular No. V-148,
which does not adjudicate or settle any controversy, and that, accordingly, this
case is not within the jurisdiction of the Court of Tax Appeals.
We find no merit in this pretense. General Circular No. V-148 directs the officers
charged with the collection of taxes and license fees to adhere strictly to the
interpretation given by the defendant tothe statutory provisions abovementioned,
as set forth in the Circular. The same incorporates, therefore, a decision of the
Collector of Internal Revenue (now Commissioner of Internal Revenue) on the
manner of enforcement of the said statute, the administration of which is
entrusted by law to the Bureau of Internal Revenue. As such, it comes within the
purview of Republic Act No. 1125, Section 7 of which provides that the Court of
Tax Appeals ‘shall exercise exclusive appellate jurisdiction to review by appeal . .
. decisions of the Collector of Internal Revenue in . . . matters arising under the
National Internal Revenue Code or other law or part of the law administered by
the Bureau of Internal Revenue.’"163
In exceptional cases, however, this court entertained direct recourse to it when
"dictated by public welfare and the advancement of public policy, or demanded
by the broader interest of justice, or the orders complained of were found to be
patent nullities, or the appeal was considered as clearly an inappropriate
remedy."164
In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The
Secretary, Department of Interior and Local Government, 165 this court noted that
the petition for prohibition was filed directly before it "in disregard of the rule on
hierarchy of courts. However, [this court] opt[ed] to take primary jurisdiction over
the . . . petition and decide the same on its merits in viewof the significant
constitutional issues raised by the parties dealing with the tax treatment of
cooperatives under existing laws and in the interest of speedy justice and prompt
disposition of the matter."166
Here, the nature and importance of the issues raised167 to the investment and
banking industry with regard to a definitive declaration of whether government
debt instruments are deposit substitutes under existing laws, and the novelty
thereof, constitute exceptional and compelling circumstances to justify resort to
this court in the first instance.
The tax provision on deposit substitutes affects not only the PEACe Bonds but
also any other financial instrument or product that may be issued and traded in
the market. Due to the changing positions of the Bureau of Internal Revenue on
this issue, there isa need for a final ruling from this court to stabilize the
expectations in the financial market.
Finally, non-compliance with the rules on exhaustion of administrative remedies
and hierarchy of courts had been rendered moot by this court’s issuance of the
temporary restraining order enjoining the implementation of the 2011 BIR Ruling.
The temporary restraining order effectively recognized the urgency and necessity
of direct resort to this court.
Substantive issues
Tax treatment of deposit
substitutes
Under Sections 24(B)(1), 27(D)(1),and 28(A)(7) of the 1997 National Internal
Revenue Code, a final withholdingtax at the rate of 20% is imposed on interest
on any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements. These
provisions read:
SEC. 24. Income Tax Rates.
....
(B) Rate of Tax on Certain Passive Income.
(1) Interests, Royalties, Prizes, and Other Winnings. - A final tax at the rate of
twenty percent (20%) is hereby imposed upon the amount of interest fromany
currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements; . . . Provided, further,
That interest income from long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax
imposed under this Subsection: Provided, finally, That should the holder of the
certificate pre-terminate the deposit or investment before the fifth (5th) year, a
final tax shall be imposed on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the long-term deposit or
investment certificate based on the remaining maturity thereof:
Four (4) years to less than five (5) years - 5%;
Three (3) years to less than four (4) years - 12%; and
Less than three (3) years - 20%. (Emphasis supplied)
SEC. 27. Rates of Income Tax on Domestic Corporations. -
....
(D) Rates of Tax on Certain Passive Incomes. -
(1) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes and from Trust Funds and Similar Arrangements, and Royalties. - A
final tax at the rate of twenty percent (20%) is hereby imposed upon the amount
of interest on currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements received by
domestic corporations, and royalties, derived from sources within the Philippines:
Provided, however, That interest income derived by a domestic corporation from
a depository bank under the expanded foreign currency deposit system shall be
subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of
such interest income. (Emphasis supplied)
SEC. 28. Rates of Income Tax on Foreign Corporations. -
(A) Tax on Resident Foreign Corporations. -
....
(7) Tax on Certain Incomes Received by a Resident Foreign Corporation. -
(a) Interest from Deposits and Yield or any other Monetary Benefit from Deposit
Substitutes, Trust Funds and Similar Arrangements and Royalties. - Interest from
any currency bank deposit and yield or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements and royalties derived
from sources within the Philippines shall be subject to a final income tax at the
rate of twenty percent (20%) of such interest: Provided, however, That interest
income derived by a resident foreign corporation from a depository bank under
the expanded foreign currency deposit system shall be subject to a final income
tax at the rate of seven and one-half percent (7 1/2%) of such interest income.
(Emphasis supplied)
This tax treatment of interest from bank deposits and yield from deposit
substitutes was first introduced in the 1977 National Internal Revenue Code
through Presidential Decree No. 1739168 issued in 1980. Later, Presidential
Decree No. 1959, effective on October 15, 1984, formally added the definition of
deposit substitutes, viz:
(y) ‘Deposit substitutes’ shall mean an alternative form of obtaining funds from
the public, other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower's own account, for the purpose
of relending or purchasing of receivables and other obligations, or financing their
own needs or the needs of their agent or dealer.These promissory notes,
repurchase agreements, certificates of assignment or participation and similar
instrument with recourse as may be authorized by the Central Bank of the
Philippines, for banks and non-bank financial intermediaries or by the Securities
and Exchange Commission of the Philippines for commercial, industrial, finance
companies and either non-financial companies: Provided, however, that only
debt instruments issued for inter-bank call loans to cover deficiency in reserves
against deposit liabilities including those between or among banks and quasi-
banks shall not be considered as deposit substitute debt instruments. (Emphasis
supplied)
Revenue Regulations No. 17-84, issued to implement Presidential Decree No.
1959, adopted verbatim the same definition and specifically identified the
following borrowings as "deposit substitutes":
SECTION 2. Definitions of Terms. . . .
(h) "Deposit substitutes" shall mean –
....
(a) All interbank borrowings by or among banks and non-bank financial
institutions authorized to engage in quasi-banking functions evidenced
by deposit substitutes instruments, except interbank call loans to cover
deficiency in reserves against deposit liabilities as evidenced by
interbank loan advice or repayment transfer tickets.
(b) All borrowings of the national and local government and its
instrumentalities including the Central Bank of the Philippines, evidenced
by debt instruments denoted as treasury bonds, bills, notes, certificates
of indebtedness and similar instruments.
(c) All borrowings of banks, non-bank financial intermediaries, finance
companies, investment companies, trust companies, including the trust
department of banks and investment houses, evidenced by deposit
substitutes instruments. (Emphasis supplied)
The definition of deposit substitutes was amended under the 1997 National
Internal Revenue Code with the addition of the qualifying phrase for public –
borrowing from 20 or more individual or corporate lenders at any one time. Under
Section 22(Y), deposit substitute is defined thus: SEC. 22. Definitions- When
used in this Title:
....
(Y) The term ‘deposit substitutes’ shall mean an alternative form of obtaining
funds from the public(the term 'public' means borrowing from twenty (20) or more
individual or corporate lenders at any one time) other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the borrower’s
own account, for the purpose of relending or purchasing of receivables and other
obligations, or financing their own needs or the needs of their agent or dealer.
These instruments may include, but need not be limited to, bankers’
acceptances, promissory notes, repurchase agreements, including reverse
repurchase agreements entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates of assignment or
participation and similar instruments with recourse: Provided, however, That debt
instruments issued for interbank call loans with maturity of not more than five (5)
days to cover deficiency in reserves against deposit liabilities, including those
between or among banks and quasi-banks, shall not be considered as deposit
substitute debt instruments. (Emphasis supplied)
Under the 1997 National Internal Revenue Code, Congress specifically defined
"public" to mean "twenty (20) or more individual or corporate lenders at any one
time." Hence, the number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and consequently subject
to the 20% final withholding tax.
20-lender rule
Petitioners contend that "there [is]only one (1) lender (i.e. RCBC) to whom the
BTr issued the Government Bonds."169 On the other hand, respondents theorize
that the word "any" "indicates that the period contemplated is the entire term of
the bond and not merely the point of origination or issuance[,]"170 such that if the
debt instruments "were subsequently sold in secondary markets and so on,
insuch a way that twenty (20) or more buyers eventually own the instruments,
then it becomes indubitable that funds would be obtained from the "public" as
defined in Section 22(Y) of the NIRC."171 Indeed, in the context of the financial
market, the words "at any one time" create an ambiguity.
Financial markets
Financial markets provide the channel through which funds from the surplus units
(households and business firms that have savings or excess funds) flow to the
deficit units (mainly business firms and government that need funds to finance
their operations or growth). They bring suppliers and users of funds together and
provide the means by which the lenders transform their funds into financial
assets, and the borrowers receive these funds now considered as their financial
liabilities. The transfer of funds is represented by a security, such as stocks and
bonds. Fund suppliers earn a return on their investment; the return is necessary
to ensure that funds are supplied to the financial markets.172
"The financial markets that facilitate the transfer of debt securities are commonly
classified by the maturity of the securities[,]"173 namely: (1) the money market,
which facilitates the flow of short-term funds (with maturities of one year or less);
and (2) the capital market, which facilitates the flow of long-term funds (with
maturities of more than one year).174
Whether referring to money marketsecurities or capital market securities,
transactions occur either in the primary market or in the secondary
market.175 "Primary markets facilitate the issuance of new securities. Secondary
markets facilitate the trading of existing securities, which allows for a change in
the ownership of the securities."176 The transactions in primary markets exist
between issuers and investors, while secondary market transactions exist among
investors.177
"Over time, the system of financial markets has evolved from simple to more
complex ways of carrying out financial transactions."178 Still, all systems perform
one basic function: the quick mobilization of money from the lenders/investors to
the borrowers.179
Fund transfers are accomplished in three ways: (1) direct finance; (2) semidirect
finance; and (3) indirect finance.180
With direct financing, the "borrower and lender meet each other and exchange
funds in returnfor financial assets"181(e.g., purchasing bonds directly from the
company issuing them). This method provides certain limitations such as: (a)
"both borrower and lender must desire to exchange the same amount of funds at
the same time"[;]182 and (b) "both lender and borrower must frequently incur
substantial information costs simply to find each other."183
In semidirect financing, a securities broker or dealer brings surplus and deficit
units together, thereby reducing information costs.184 A Broker185 is "an individual
or financial institution who provides information concerning possible purchases
and sales of securities. Either a buyer or a seller of securities may contact a
broker, whose job is simply to bring buyers and sellers together."186 A
dealer187 "also serves as a middleman between buyers and sellers, but the dealer
actually acquires the seller’s securities in the hope of selling them at a later time
at a more favorable price."188 Frequently, "a dealer will split up a large issue of
primary securities into smaller units affordable by . . . buyers . . . and thereby
expand the flow of savings into investment." 189 In semi direct financing, "[t]he
ultimate lender still winds up holding the borrower’s securities, and therefore the
lender must be willing to accept the risk, liquidity, and maturity characteristics of
the borrower’s [debt security]. There still must be a fundamental coincidence of
wants and needs between [lenders and borrowers] for semidirect financial
transactions to take place."190
"The limitations of both direct and semidirect finance stimulated the development
of indirect financial transactions, carried out with the help of financial
intermediaries"191 or financial institutions, like banks, investment banks, finance
companies, insurance companies, and mutual funds.192 Financial intermediaries
accept funds from surplus units and channel the funds to deficit
units.193 "Depository institutions [such as banks] accept deposits from surplus
units and provide credit to deficit units through loans and purchase of [debt]
securities."194 Nondepository institutions, like mutual funds, issue securities of
their own (usually in smaller and affordable denominations) to surplus units and
at the same time purchase debt securities of deficit units.195 "By pooling the
resources of[small savers, a financial intermediary] can service the credit needs
of large firms simultaneously."196
The financial market, therefore, is an agglomeration of financial transactions in
securities performed by market participants that works to transfer the funds from
the surplus units (or investors/lenders) to those who need them (deficit units or
borrowers).
Meaning of "at any one time"
Thus, from the point of view of the financial market, the phrase "at any one time"
for purposes of determining the "20 or more lenders" would mean every
transaction executed in the primary or secondary market in connection with the
purchase or sale of securities.
For example, where the financial assets involved are government securities like
bonds, the reckoning of "20 or more lenders/investors" is made at any
transaction in connection with the purchase or sale of the Government Bonds,
such as:
1. Issuance by the Bureau of Treasury of the bonds to GSEDs in the
primary market;
2. Sale and distribution by GSEDs to various lenders/investors in the
secondary market;
3. Subsequent sale or trading by a bondholder to another lender/investor
in the secondary market usually through a broker or dealer; or
4. Sale by a financial intermediary-bondholder of its participation
interests in the bonds to individual or corporate lenders in the secondary
market.
When, through any of the foregoing transactions, funds are simultaneously
obtained from 20 or morelenders/investors, there is deemed to be a public
borrowing and the bonds at that point intime are deemed deposit substitutes.
Consequently, the seller is required to withhold the 20% final withholding tax on
the imputed interest income from the bonds.
For debt instruments that are
not deposit substitutes, regular
income tax applies
It must be emphasized, however, that debt instruments that do not qualify as
deposit substitutes under the 1997 National Internal Revenue Code are subject
to the regular income tax.
The phrase "all income derived from whatever source" in Chapter VI,
Computation of Gross Income, Section 32(A) of the 1997 National Internal
Revenue Code discloses a legislative policy to include all income not expressly
exempted as within the class of taxable income under our laws.
"The definition of gross income isbroad enough to include all passive incomes
subject to specific tax rates or final taxes."197 Hence, interest income from deposit
substitutes are necessarily part of taxable income. "However, since these
passive incomes are already subject to different rates and taxed finally at source,
they are no longer included in the computation of gross income, which
determines taxable income."198 "Stated otherwise . . . if there were no withholding
tax system in place in this country, this 20 percent portion of the ‘passive’ income
of [creditors/lenders] would actually be paid to the [creditors/lenders] and then
remitted by them to the government in payment of their income tax."199
This court, in Chamber of Real Estate and Builders’ Associations, Inc. v.
Romulo,200 explained the rationale behind the withholding tax system:
The withholding [of tax at source] was devised for three primary reasons: first, to
provide the taxpayer a convenient manner to meet his probable income tax
liability; second, to ensure the collection of income tax which can otherwise be
lost or substantially reduced through failure to file the corresponding returns[;]
and third, to improve the government’s cash flow. This results in administrative
savings, prompt and efficient collection of taxes, prevention of delinquencies and
reduction of governmental effort to collect taxes through more complicated
means and remedies.201 (Citations omitted)
"The application of the withholdings system to interest on bank deposits or yield
from deposit substitutes is essentially to maximize and expedite the collection of
income taxes by requiring its payment at the source."202
Hence, when there are 20 or more lenders/investors in a transaction for a
specific bond issue, the seller isrequired to withhold the 20% final income tax on
the imputed interest income from the bonds.
Interest income v. gains from sale or redemption
The interest income earned from bonds is not synonymous with the "gains"
contemplated under Section 32(B)(7)(g)203 of the 1997 National Internal Revenue
Code, which exempts gains derived from trading, redemption, or retirement of
long-term securities from ordinary income tax.
The term "gain" as used in Section 32(B)(7)(g) does not include interest, which
represents forbearance for the use of money. Gains from sale or exchange or
retirement of bonds orother certificate of indebtedness fall within the general
category of "gainsderived from dealings in property" under Section 32(A)(3),
while interest from bonds or other certificate of indebtedness falls within the
category of "interests" under Section 32(A)(4).204 The use of the term "gains from
sale" in Section 32(B)(7)(g) shows the intent of Congress not toinclude interest
as referred under Sections 24, 25, 27, and 28 in the exemption.205
Hence, the "gains" contemplated in Section 32(B)(7)(g) refers to: (1) gain
realized from the trading of the bonds before their maturity date, which is the
difference between the selling price of the bonds in the secondary market and
the price at which the bonds were purchased by the seller; and (2) gain realized
by the last holder of the bonds when the bonds are redeemed at maturity, which
is the difference between the proceeds from the retirement of the bonds and the
price atwhich such last holder acquired the bonds. For discounted
instruments,like the zero-coupon bonds, the trading gain shall be the excess of
the selling price over the book value or accreted value (original issue price plus
accumulated discount from the time of purchase up to the time of sale) of the
instruments.206
The Bureau of Internal
Revenue rulings
The Bureau of Internal Revenue’s interpretation as expressed in the three 2001
BIR Rulings is not consistent with law.207 Its interpretation of "at any one time" to
mean at the point of origination alone is unduly restrictive.
BIR Ruling No. 370-2011 is likewise erroneous insofar as it stated (relying on the
2004 and 2005 BIR Rulings) that "all treasury bonds . . . regardlessof the number
of purchasers/lenders at the time of origination/issuance are considered deposit
substitutes."208 Being the subject of this petition, it is, thus, declared void because
it completely disregarded the 20 or more lender rule added by Congress in the
1997 National Internal Revenue Code. It also created a distinction for
government debt instruments as against those issued by private corporations
when there was none in the law.
Tax statutes must be reasonably construed as to give effect to the whole act.
Their constituent provisions must be read together, endeavoring to make every
part effective, harmonious, and sensible.209 That construction which will leave
every word operative will be favored over one that leaves some word, clause, or
sentence meaningless and insignificant.210
It may be granted that the interpretation of the Commissioner of Internal Revenue
in charge of executing the 1997 National Internal Revenue Code is an
authoritative construction ofgreat weight, but the principle is not absolute and
may be overcome by strong reasons to the contrary. If through a
misapprehension of law an officer has issued an erroneous interpretation, the
error must be corrected when the true construction is ascertained.
In Philippine Bank of Communications v. Commissioner of Internal
Revenue,211 this court upheld the nullification of Revenue Memorandum Circular
(RMC) No. 7-85 issued by the Acting Commissioner of Internal Revenue
because it was contrary to the express provision of Section 230 of the 1977
National Internal Revenue Codeand, hence, "[cannot] be given weight for to do
so would, in effect, amend the statute."212 Thus:
When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing
the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments, such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret
the law; rather it legislated guidelines contrary to the statute passed by
Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts. Nevertheless, such interpretation is not
conclusive and will be ignored if judicially found to be erroneous. Thus, courts will
not countenance administrative issuances that override, instead of remaining
consistent and in harmony with, the law they seek to apply and
implement.213(Citations omitted)
This court further held that "[a] memorandum-circular of a bureau head could not
operate to vest a taxpayer with a shield against judicial action [because] there
are no vested rights to speak of respecting a wrong construction of the law by the
administrative officials and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same."214 In Commissioner of
Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,215 this court nullified
Revenue Memorandum Order (RMO) No. 15-91 and RMC No. 43-91, which
imposed a 5% lending investor's tax on pawnshops.216 It was held that "the
[Commissioner] cannot, in the exercise of [its interpretative] power, issue
administrative rulings or circulars not consistent with the law sought to be
applied. Indeed, administrative issuances must not override, supplant or modify
the law, but must remain consistent with the law they intend to carry out. Only
Congress can repeal or amend the law."217
In Misamis Oriental Association of Coco Traders, Inc. v. Department of Finance
Secretary,218 this court stated that the Commissioner of Internal Revenue is not
bound by the ruling of his predecessors,219 but, to the contrary, the overruling of
decisions is inherent in the interpretation of laws:
[I]n considering a legislative rule a court is free to make three inquiries: (i)
whether the rule is within the delegated authority of the administrative agency; (ii)
whether itis reasonable; and (iii) whether it was issued pursuant to proper
procedure. But the court is not free to substitute its judgment as to the desirability
or wisdom of the rule for the legislative body, by its delegation of administrative
judgment, has committed those questions to administrative judgments and not to
judicial judgments. In the case of an interpretative rule, the inquiry is not into the
validity but into the correctness or propriety of the rule. As a matter of power a
court, when confronted with an interpretative rule, is free to (i) give the force of
law to the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii)
give some intermediate degree of authoritative weight to the interpretative rule.
In the case at bar, we find no reason for holding that respondent Commissioner
erred in not considering copra as an "agricultural food product" within the
meaning of § 103(b) of the NIRC. As the Solicitor General contends, "copra per
se is not food, that is, it is not intended for human consumption. Simply stated,
nobody eats copra for food." That previous Commissioners considered it so, is
not reason for holding that the present interpretation is wrong. The Commissioner
of Internal Revenue is not bound by the ruling of his predecessors. To the
contrary, the overruling of decisions is inherent in the interpretation of
laws.220 (Emphasis supplied, citations omitted)
Tax treatment of income
derived from the PEACe Bonds
The transactions executed for the sale of the PEACe Bonds are:
1. The issuance of the 35 billion Bonds by the Bureau of Treasury to
RCBC/CODE-NGO at 10.2 billion; and
2. The sale and distribution by RCBC Capital (underwriter) on behalf of
CODE-NGO of the PEACe Bonds to undisclosed investors at ₱11.996
billion.
It may seem that there was only one lender — RCBC on behalf of CODE-NGO
— to whom the PEACe Bonds were issued at the time of origination. However, a
reading of the underwriting agreement221 and RCBC term sheet222reveals that the
settlement dates for the sale and distribution by RCBC Capital (as underwriter for
CODE-NGO) of the PEACe Bonds to various undisclosed investors at a
purchase price of approximately ₱11.996 would fall on the same day, October
18, 2001, when the PEACe Bonds were supposedly issued to CODE-
NGO/RCBC. In reality, therefore, the entire ₱10.2 billion borrowing received by
the Bureau of Treasury in exchange for the ₱35 billion worth of PEACe Bonds
was sourced directly from the undisclosed number of investors to whom RCBC
Capital/CODE-NGO distributed the PEACe Bonds — all at the time of origination
or issuance. At this point, however, we do not know as to how many investors the
PEACe Bonds were sold to by RCBC Capital.
Should there have been a simultaneous sale to 20 or more lenders/investors, the
PEACe Bonds are deemed deposit substitutes within the meaning of Section
22(Y) of the 1997 National Internal Revenue Code and RCBC Capital/CODE-
NGO would have been obliged to pay the 20% final withholding tax on the
interest or discount from the PEACe Bonds. Further, the obligation to withhold
the 20% final tax on the corresponding interest from the PEACe Bonds would
likewise be required of any lender/investor had the latter turnedaround and sold
said PEACe Bonds, whether in whole or part, simultaneously to 20 or more
lenders or investors.
We note, however, that under Section 24223 of the 1997 National Internal Revenue
Code, interest income received by individuals from longterm deposits or
investments with a holding period of not less than five (5) years is exempt from
the final tax.
Thus, should the PEACe Bonds be found to be within the coverage of deposit
substitutes, the proper procedure was for the Bureau of Treasury to pay the face
value of the PEACe Bonds to the bondholders and for the Bureau of Internal
Revenue to collect the unpaid final withholding tax directly from RCBC
Capital/CODE-NGO, orany lender or investor if such be the case, as the
withholding agents.
The collection of tax is not
barred by prescription
The three (3)-year prescriptive period under Section 203 of the 1997 National
Internal Revenue Code to assess and collect internal revenue taxes is extended
to 10 years in cases of (1) fraudulent returns; (2) false returns with intent to
evade tax; and (3) failureto file a return, to be computed from the time of
discovery of the falsity, fraud, or omission. Section 203 states:
SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as
provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (Emphasis supplied)
....
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes.
(a) In the case of a false or fraudulent return with intent to evade tax or of failure
to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for the collection
thereof.
Thus, should it be found that RCBC Capital/CODE-NGO sold the PEACe Bonds
to 20 or more lenders/investors, the Bureau of Internal Revenue may still collect
the unpaid tax from RCBC Capital/CODE-NGO within 10 years after the
discovery of the omission.
In view of the foregoing, there is no need to pass upon the other issues raised by
petitioners and petitioners-intervenors.
Reiterative motion on the temporary restraining order
Respondents’ withholding of the
20% final withholding tax on
October 18, 2011 was justified
Under the Rules of Court, court orders are required to be "served upon the
parties affected."224 Moreover, service may be made personally or by mail.225 And,
"[p]ersonal service is complete upon actual delivery [of the order.]"226This court’s
temporary restraining order was received only on October 19, 2011, or a day
after the PEACe Bonds had matured and the 20% final withholding tax on the
interest income from the same was withheld.
Publication of news reports in the print and broadcast media, as well as on the
internet, is not a recognized mode of service of pleadings, court orders, or
processes. Moreover, the news reports227 cited by petitioners were posted
minutes before the close of office hours or late in the evening of October 18,
2011, and they did not givethe exact contents of the temporary restraining order.
"[O]ne cannot be punished for violating an injunction or an order for an injunction
unless it is shown that suchinjunction or order was served on him personally or
that he had notice of the issuance or making of such injunction or order."228
At any rate, "[i]n case of doubt, a withholding agent may always protect himself or
herself by withholding the tax due"229 and return the amount of the tax withheld
should it be finally determined that the income paid is not subject to
withholding.230 Hence, respondent Bureau of Treasury was justified in withholding
the amount corresponding to the 20% final withholding tax from the proceeds of
the PEACe Bonds, as it received this court’s temporary restraining order only on
October 19, 2011, or the day after this tax had been withheld.
Respondents’ retention of the
amounts withheld is a defiance
of the temporary restraining
order
Nonetheless, respondents’ continued failure to release to petitioners the amount
corresponding to the 20% final withholding tax in order that it may be placed in
escrow as directed by this court constitutes a defiance of this court’s temporary
restraining order.231
The temporary restraining order is not moot. The acts sought to be enjoined are
not fait accompli. For an act to be considered fait accompli, the act must have
already been fully accomplished and consummated.232 It must be irreversible,
e.g., demolition of properties,233 service of the penalty of imprisonment,234 and
hearings on cases.235When the act sought to be enjoined has not yet been fully
satisfied, and/or is still continuing in nature,236 the defense of fait accomplicannot
prosper.
The temporary restraining order enjoins the entire implementation of the 2011
BIR Ruling that constitutes both the withholding and remittance of the 20% final
withholding tax to the Bureau of Internal Revenue. Even though the Bureau of
Treasury had already withheld the 20% final withholding tax237 when it received
the temporary restraining order, it had yet to remit the monies it withheld to the
Bureau of Internal Revenue, a remittance which was due only on November 10,
2011.238 The act enjoined by the temporary restraining order had not yet been
fully satisfied and was still continuing.
Under DOF-DBM Joint Circular No. 1-2000A239 dated July 31, 2001 which
prescribes to national government agencies such as the Bureau of Treasury the
procedure for the remittance of all taxes it withheld to the Bureau of Internal
Revenue, a national agency shall file before the Bureau of Internal Revenue a
Tax Remittance Advice (TRA) supported by withholding tax returns on or before
the 10th day of the following month after the said taxes had been withheld.240 The
Bureau of Internal Revenue shall transmit an original copy of the TRA to the
Bureau of Treasury,241which shall be the basis for recording the remittance of the
tax collection.242 The Bureau of Internal Revenue will then record the amount of
taxes reflected in the TRA as tax collection in the Journal ofTax Remittance by
government agencies based on its copies of the TRA.243 Respondents did not
submit any withholding tax return or TRA to provethat the 20% final withholding
tax was indeed remitted by the Bureau of Treasury to the Bureau of Internal
Revenue on October 18, 2011.
Respondent Bureau of Treasury’s Journal Entry Voucher No. 11-10-
10395244 dated October 18, 2011 submitted to this court shows:
Account Debit Amount Credit
Code Amount
Bonds Payable-L/T, Dom-Zero 442-360 35,000,000,000.00
Coupon T/Bonds
(Peace Bonds) – 10 yr
Sinking Fund-Cash (BSF) 198-001 30,033,792,203.59
Due to BIR 412-002 4,966,207,796.41
To record redemption of 10yr
Zero
coupon (Peace Bond) net of the
20% final
withholding tax pursuant to BIR
Ruling No.
378-2011, value date, October
18, 2011 per
BTr letter authority and BSP
Bank
Statements.
The foregoing journal entry, however, does not prove that the amount of
₱4,966,207,796.41, representing the 20% final withholding tax on the PEACe
Bonds, was disbursed by it and remitted to the Bureau of Internal Revenue on
October 18, 2011. The entries merely show that the monies corresponding to
20% final withholding tax was set aside for remittance to the Bureau of Internal
Revenue.
We recall the November 15, 2011 resolution issued by this court directing
respondents to "show cause why they failed to comply with the [TRO]; and [to]
comply with the [TRO] in order that petitioners may place the corresponding
funds in escrow pending resolution of the petition."245 The 20% final withholding
tax was effectively placed in custodia legiswhen this court ordered the deposit of
the amount in escrow. The Bureau of Treasury could still release the money
withheld to petitioners for the latter to place in escrow pursuant to this court’s
directive. There was no legal obstacle to the release of the 20% final withholding
tax to petitioners. Congressional appropriation is not required for the servicing of
public debts in view of the automatic appropriations clause embodied in
Presidential Decree Nos. 1177 and 1967.
Section 31 of Presidential Decree No. 1177 provides:
Section 31. Automatic Appropriations. All expenditures for (a) personnel
retirement premiums, government service insurance, and other similar fixed
expenditures, (b) principal and interest on public debt, (c) national government
guarantees of obligations which are drawn upon, are automatically appropriated:
provided, that no obligations shall be incurred or payments made from funds thus
automatically appropriated except as issued in the form of regular budgetary
allotments.
Section 1 of Presidential Decree No. 1967 states:
Section 1. There is hereby appropriated, out of any funds in the National
Treasury not otherwise appropriated, such amounts as may be necessary to
effect payments on foreign or domestic loans, or foreign or domestic loans
whereon creditors make a call on the direct and indirect guarantee of the
Republic of the Philippines, obtained by:
a. the Republic of the Philippines the proceeds of which were relent to
government-owned or controlled corporations and/or government
financial institutions;
b. government-owned or controlled corporations and/or government
financial institutions the proceeds of which were relent to public or
private institutions;
c. government-owned or controlled corporations and/or financial
institutions and guaranteed by the Republic of the Philippines;
d. other public or private institutions and guaranteed by government
owned or controlled corporations and/or government financial
institutions.
The amount of ₱35 billion that includes the monies corresponding to 20% final
withholding tax is a lawfuland valid obligation of the Republic under the
Government Bonds. Since said obligation represents a public debt, the release of
the monies requires no legislative appropriation.
Section 2 of Republic Act No. 245 likewise provides that the money to be used
for the payment of Government Bonds may be lawfully taken from the continuing
appropriation out of any monies in the National Treasury and is not required to be
the subject of another appropriation legislation: SEC. 2. The Secretary of Finance
shall cause to be paid out of any moneys in the National Treasury not otherwise
appropriated, or from any sinking funds provided for the purpose by law, any
interest falling due, or accruing, on any portion of the public debt authorized by
law. He shall also cause to be paid out of any such money, or from any such
sinking funds the principal amount of any obligations which have matured, or
which have been called for redemption or for which redemption has been
demanded in accordance with terms prescribed by him prior to date of issue. . .
In the case of interest-bearing obligations, he shall pay not less than their face
value; in the case of obligations issued at a discount he shall pay the face value
at maturity; or if redeemed prior to maturity, such portion of the face value as is
prescribed by the terms and conditions under which such obligations were
originally issued. There are hereby appropriated as a continuing appropriation
out of any moneys in the National Treasury not otherwise appropriated, such
sums as may be necessary from time to time to carry out the provisions of this
section. The Secretary of Finance shall transmit to Congress during the first
month of each regular session a detailed statement of all expenditures made
under this section during the calendar year immediately preceding.
Thus, DOF Department Order No. 141-95, as amended, states that payment for MARVIC M.V.F. LEONEN
Treasury bills and bonds shall be made through the National Treasury’s account Associate Justice
with the Bangko Sentral ng Pilipinas, to wit:
WE CONCUR:
Section 38. Demand Deposit Account.– The Treasurer of the Philippines
maintains a Demand Deposit Account with the Bangko Sentral ng Pilipinas to MARIA LOURDES P.A. SERENO
which all proceeds from the sale of Treasury Bills and Bonds under R.A. No. 245, Chief Justice
as amended, shall be credited and all payments for redemption of Treasury Bills
and Bonds shall be charged. 1âw phi 1

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Regarding these legislative enactments ordaining an automatic appropriations Associate Justice Associate Justice
provision for debt servicing, this court has held:
TERESITA J. LEONARDO-DE (On leave)
Congress . . . deliberates or acts on the budget proposals of the President, and CASTRO ARTURO D. BRION*
Congress in the exercise of its own judgment and wisdom formulates an Associate Justice Associate Justice
appropriation act precisely following the process established by the Constitution,
which specifies that no money may be paid from the Treasury except in
accordance with an appropriation made by law. DIOSDADO M. PERALTA LUCAS P. BERSAMIN
Associate Justice Associate Justice
Debt service is not included inthe General Appropriation Act, since authorization
therefor already exists under RA Nos. 4860 and 245, as amended, and PD 1967. MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.
Precisely in the light of this subsisting authorization as embodied in said Republic Associate Justice Associate Justice
Acts and PD for debt service, Congress does not concern itself with details for
implementation by the Executive, butlargely with annual levels and approval
thereof upon due deliberations as part of the whole obligation program for the JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA
year. Upon such approval, Congress has spoken and cannot be said to Associate Justice Associate Justice
havedelegated its wisdom to the Executive, on whose part lies the
implementation or execution of the legislative wisdom.246 (Citation omitted) BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE
Associate Justice Associate Justice
Respondent Bureau of Treasury had the duty to obey the temporary restraining
order issued by this court, which remained in full force and effect, until set aside,
vacated, or modified. Its conduct finds no justification and is reprehensible. 247 FRANCIS H. JARDELEZA
Associate Justice
WHEREFORE, the petition for review and petitions-in-intervention are
GRANTED. BIR Ruling Nos. 370-2011 and DA 378-2011 are NULLIFIED. CERTIFICATION

Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued I certify that the conclusions in the above Decision had been reached in
retention of the amount corresponding to the 20% final withholding tax despite consultation before the case was assigned to the writer of the opinion of the
this court's directive in the temporary restraining order and in the resolution dated court.
November 15, 2011 to deliver the amounts to the banks to be placed in escrow
pending resolution of this case. MARIA LOURDES P.A. SERENO
Chief Justice
Respondent Bureau of Treasury is hereby ORDERED to immediately ·release
and pay to the bondholders the amount corresponding-to the 20% final
withholding tax that it withheld on October 18, 2011.
 SECOND DIVISION
G.R. No. 220502, February 12, 2018
STEEL CORPORATION OF THE PHILIPPINES, Petitioner, v. BUREAU OF CUSTOMS
(BOC), BUREAU OF INTERNAL REVENUE (BIR), DEPARTMENT OF FINANCE (DOF),
OFFICE OF THE PRESIDENT (OP), AND MUNICIPALITY OF BALAYAN,
BATANGAS, Respondents.
DECISION
PERALTA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court (Rules) seeks to
reverse and set aside the November 19, 2014 Decision1 and September 15, 2015
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 127046 dismissing the appeal
and affirming the Regional Trial Court (RTC) Order3dated June 6, 2012, which stated:
WHEREFORE, premises considered, the Motion for Reconsideration filed by the Office of
the Solicitor General regarding the Order dated January 12, 2012, the Omnibus Motion
filed by the BIR and the Motion for Reconsideration filed by the Office of the Solicitor
General with regard the Order dated March 5, 2012 are granted.
Accordingly, the Orders dated January 12, 2012 and March 5, 2012 are set aside.
The Motion for Execution filed by plaintiff is denied. Likewise, the writ of preliminary
injunction issued on March 8, 2012 is hereby dissolved.
SO ORDERED.4
The factual antecedents are as follows: On September 11, 2006, Equitable PCI Bank, Inc.
initiated a petition for rehabilitation5 of Steel Corporation of the Philippines (STEELCORP),
a domestic corporation organized and existing under Philippine laws, with principal place
of business in Barangay Munting Tubig, Balayan, Batangas, and is engaged in the
manufacture and distribution of cold-rolled, galvanized and pre-painted steel sheets and
coils and fabrication of metal building products. The case was docketed as SP. Proc. No.
06-7993 and pending before the RTC of Batangas City. Finding the petition to be
sufficient in form and substance, the court issued an Order6 on September 12, 2006,
which directed, among others, the "[stay] [of] all claims against [STEELCORP], by all
other corporations, persons or entities insofar as they may be affected by the present
proceedings, until further notice from this Court, pursuant to Sec. 6, of Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation."
While the rehabilitation proceedings were pending, Republic Act (R.A.) No. 10142, or
the Financial Rehabilitation and Insolvency Act (FRIA) of 2010 was enacted.7 Section 19
of which mandates:
SEC. 19. Waiver of Taxes and Fees Due to the National Government and to Local
Government Units (LGUs). - Upon issuance of the Commencement Order by the court,
and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is
earlier, the imposition of all taxes and fees, including penalties, interests and charges
thereof, due to the national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.
On December 16, 2010, the representatives of STEELCORP and the Municipality of
Balayan, Batangas met to discuss the effects of the aforequoted provision. As agreed, the
municipal government waived the taxes and other fees that may be due from STEELCORP
starting the year 2011 and until a final rehabilitation plan is approved by the court.8
In a letter9 dated October 1, 2010, and addressed to Bureau of Customs (BOC)
Commissioner Angelito A. Alvarez, STEELCORP manifested its intent to avail of the
privileges granted by Section 19 of R. A. No. 10142, stressing that the import duties and
fees/VAT which the BOC wanted to impose on and collect cannot be made without
violating the aforesaid provision. It appears that STEELCORP had imported raw materials
for use in its manufacture of steel products, which the BOC assessed with taxes in the
sum of P41,206,120.00.10
In a Memorandum11 dated October 26, 2010, Commissioner Alvarez, upon the
recommendation of the BOC Director of Legal Service and the concurrence of the Deputy
Commissioner of the BOC Revenue Collection Management Group, approved the waiver of
all taxes and fees which are due to STEELCORP. On March 8, 2011, he sent his
1st Indorsement to the Department of Finance (DOF), stating that "the release of the
[Memorandum dated October 26, 2010] had been put on hold pending clearance from the
[DOF]. The attention of [DOF] is invited to the revenue loss that may be suffered by the
Bureau in the implementation thereof as shown by the attached summary of importations
for the past three years, and the fact that the said company is still continuously importing
raw materials up to the present. "12
Subsequently, DOF Undersecretary Carlo A. Carag issued 2nd Indorsement13 dated May
26, 2011, which disapproved the recommendation of Commissioner Alvarez based on two
grounds: (1) the Stay Order relied upon by STEELCORP is not the same as the
Commencement Order required by law to consider the taxes and customs duties waived;
and (2) assuming that the Stay Order is the same as the Commencement Order, the
waiver contemplated under Section 19 does not include taxes and customs duties due on
importations or shipments that were made by STEELCORP after the issuance of the
Commencement Order.
STEELCORP elevated the matter to the Office of the President (OP), which docketed the
case as O.P. No. 11-F-211.
Undersecretary Carag moved to dismiss the appeal for lack of jurisdiction. He noted that
"the assailed 2nd Indorsement dated May 26, 2011 issued by [the DOF] involves customs
matters for automatic review from the decision of the Commissioner of Customs, which
was adverse to the Government, under Section 2315 of the Tariff and Customs Code of
the Philippines (TCCP), as amended. Verily, it is the Court of Tax Appeals (CTA) which has
the exclusive appellate jurisdiction to review the decision of the Secretary of Finance
pursuant to Section 7, Republic Act No. 1125, as amended. "14 In
opposition,15STEELCORP contended that Section 2315 of the TCCP is irrelevant since said
provision presupposes that there is already an assessment of duties by the Collector of
Customs, which is not so in this case because the appeal "does not involve a decision of
the Commissioner in a case involving the liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fine, forfeitures or other
penalties imposed in relation thereto, or other matters arising under the Customs Laws or
other law or part of law administered by the Bureau of Customs. " It was argued that the
OP is vested with quasi-judicial functions under Administrative Order No. 18, Series of
1987.
On September 14, 2011, STEELCORP filed a Complaint16 against the respondents for
injunction with application for immediate issuance of temporary restraining order (TRO)
and writ of preliminary injunction (WPI). It was docketed as Civil Case No. 5042 and
raffled before RTC, Br. 10 of Balayan, Batangas. The action sought to restrain the
respondents from assessing and continuing to assess STEELCORP of all taxes and fees
due to the national government, including penalties, interests, and charges from the
issuance of the Stay Order on September 12, 2006 and until final court approval of the
rehabilitation plan.
In its Order17 dated September 15, 2011, the RTC issued a 72-hour TRO which was later
extended until the application for preliminary injunction could be heard. On November 9,
2011, the RTC issued a Status Quo Order18 extending the effects of the TRO until such
time that the respondents were given the opportunity to be heard and the issue on the
issuance of preliminary injunction had been resolved. Meantime, on November 9, 2011,
the OP deferred the resolution of O.P. No. 11-F-211 until final resolution of Civil Case No.
5042.19
On January 12, 2012, the court ordered the Manila International Container Port (MICP)
District Collector of Customs to immediately comply with the Status Quo Order by
refraining the imposition of customs duties and taxes on the importation of raw materials
of STEELCORP and to immediately release to the corporation the raw materials without
payment of duties/taxes and without further delay.20 On the same day, the Office of the
Solicitor General (OSG), acting for and in behalf of the BIR, BOC, DOF, and OP, filed a
Motion to Dismiss (MTD).21 It was argued that the RTC has no jurisdiction to hear and
determine the complaint because, under Section 602 (g) of Presidential Decree (P.D.) No.
1464 or the TCCP, the BOC acquires exclusive jurisdiction over imported goods for
purposes of enforcement of the customs laws from the moment the goods are actually in
its possession or control; thus, the Status Quo Order is null and void. Also, under Section
2315 of the TCCP, the 2nd Indorsement dated May 26, 2011 should be appealed to the
CTA; hence, the appeal to the OP did not toll the running of the 30-day reglementary
period provided under Section 11 of R.A. No. 9282. Reiterating the position of the BOC,
the OSG further contended that: (1) the Stay Order is not the same as the
Commencement Order required by law to consider the taxes and customs duties waived;
and (2) assuming that both orders are the same, the waiver contemplated under Section
19 does not include the payment of taxes and customs duties on STEELCORP's future
importations or incoming shipments. STEELCORP opposed the motion.22
On March 5, 2012, the RTC denied the MTD and directed the issuance of a WPI "enjoining
the defendants, their agents, representatives and assigns acting in their behalf, from
assessing, imposing, or collecting all taxes, customs duties and fees due from the national
or local government until after the final disposition of this case."23 The writ was issued on
March 8, 2012.24
The opposing parties filed various motions before the RTC. In its Order25 dated June 6,
2012, the issues raised were simultaneously resolved as follows:
1. Denial of STEELCORP's motion to strike Answer filed by the BIR;
The Memorandum of Agreement (MOA) dated March 17, 2012 between the OSG and the
BIR, is an exception to Memorandum Circular No. 152 issued on May 7, 1992. The MOA
authorized the BIR-handling lawyer to be the lead lawyer in cases of first instance filed
before the CTA Divisions, Metropolitan Trial Courts, Municipal Trial Courts, Municipal
Circuit Trial Courts, Regional Trial Courts, Department of Justice, and other administrative
agencies. Hence, the BIR lawyer has the authority to appear for and its behalf and,
consequently, to file an Answer in this case.
2. Denial of STEELCORP's urgent ex-parte motion for execution of the January 12, 2012
Order;
The motion was premature in view of the necessity to resolve first the OSG's motion for
reconsideration of the January 12, 2012 Order.
3. Grant of the OSG's motion for reconsideration of the January 12, 2012 Order; the BIR's
omnibus motion for reconsideration and to dissolve the WPI; and the OSG's motion for
reconsideration of the March 5, 2012 Order;
The BIR and the BOC are the agencies tasked to collect taxes and customs duties,
respectively. Inasmuch as what are to be collected, how much, when, and from whom as
provided by law are to be ascertained and discharged by said agencies, the question of
who are to be exempted shall also be determined by them. The issue of whether
STEELCORP may avail of the benefits of R.A. No. 10142 should have been raised before
the CTA after the BOC denied the claim.
4. Denial of STEELCORP's motion to strike the BIR's omnibus motion and the OSG's
motion for reconsideration of the March 5, 2012 Order;
The BIR's omnibus motion and the OSG's motion for reconsideration contained proper
notices of hearing and the BIR lawyers are authorized to appear for and its behalf.
Aggrieved, STEELCORP moved for reconsideration, which was denied on September 17,
2012.26Consequently, it filed before the CA an appeal under Rule 41 of the Rules to
challenge the RTC Orders dated June 6, 2012 and September 17, 2012. Two issues were
raised, to wit:
I. Whether or not the trial court erred when it allowed and gave due course to the
separate motions of the BOC and the BIR despite their procedural and jurisdictional
infirmities; and
II. Whether or not the trial court erred in lifting the preliminary injunction and ordering
the dismissal of the complaint.27
Anent the first issue, STEELCORP pointed out that the notice of hearing on the OSG's
motion for reconsideration indicated that it was submitted for the consideration and
approval of the RTC on April 6, 2012, which was a Good Friday. As to the BIR's omnibus
motion, the notice of hearing was dated March 28, 2012 but the motion was submitted
for hearing on April 12, 2012; thus, beyond the ten-day period required under Section 5,
Rule 15 of the Rules. It also fell on a Monday, violating Section 7, Rule 15 thereof.
With respect to the second issue, STEELCORP argued that the OP recognized that the
issue involved in this case - the interpretation of Sections 19 and 146 of R.A. No. 10142 -
is a legal question. Moreover, the parties are estopped by their agreement to refer the
matter to the trial court, which, being one of general jurisdiction, had sufficient authority
to assume over the case.
On November 19, 2014, the CA dismissed the appeal. It was opined that there was no
infirmity in the notices of hearing of the motions filed by the OSG and the BIR because
STEELCORP was given ample time to oppose them and prepare appropriate pleadings to
refute the same. On the second issue, the CA reminded that it is the law that confers
jurisdiction and not experience, practice or tradition, or agreement of the parties. It was
noted that the complaint for injunction sought to enjoin the BOC and the BIR from
collecting customs duties and taxes on the importations made by STEELCORP. Under
Section 7 (4) of R.A. No. 1125, as amended by R.A. No. 9282, the BOC's denial of the
request for exemption should have been appealed to the CTA, which has the power to
issue an injunction pursuant to Section 11, Paragraph 4 thereof.
A motion for reconsideration was filed, but it was denied on September 15, 2015; hence,
this petition.
STEELCORP maintains that the CA erred when it sustained the trial court's act of giving
due course to the OSG and the BIR motions that were set for hearing on days that were
declared as national holiday and/or beyond the period prescribed by the Rules. Likewise,
it insists that the present controversy does not assail its liability to pay customs duties,
taxes or other charges on its importation of raw materials. Rather, the issue is whether a
corporation placed under corporate rehabilitation can avail the benefits of Section 19 of
R.A. No. 10142, which issue is cognizable by the RTC and whose decision may be
appealed to the CA or the Supreme Court and not to any other court like the CTA.
STEELCORP stresses that it is not raising any issue as to the amount and collectibility of
the taxes and duties on its importation but is only seeking compliance by the respondents
of their obligations under Section 19.
At the outset, it must be said that this petition was already denied on November 11,
2015.28 However, it was reinstated on June 15, 2016 when STEELCORP’s motion for
reconsideration was granted.29
Once again, We deny.
In Philippine National Bank v. Judge Paneda,30 the Court similarly held:
The courts a quo also stress that the said Motion failed to comply with Sections 5 and 7 of
Rule 15, Rules of Court, to wit:
Section 5. Notice of hearing. - The notice of hearing shall be addressed to all parties
concerned, and shall specify the time and date of the hearing which must not be later
than ten (10) days after the filing of the motion.
Section 7. Motion day. - Except for motions requiring immediate action, all motions shall
be scheduled for hearing on Friday afternoon, or if Friday is a non-working day, in the
afternoon the next working day.
The RTC held that petitioner's Motion which was filed on December 3, 1998, and was set
for hearing on December 21, 1998, eight days beyond the reglementary period prescribed
under Section 5, Rule 15, and that the Motion set the hearing on a Monday and not on a
Friday. The C A held that the notice of hearing of said Motion was not addressed to the
parties concerned.
The foregoing conclusions are incorrect.
The Court, in Maturan v. Araula, held:
As enjoined by the Rules of Court and the controlling jurisprudence, a liberal construction
of the rules and the pleadings is the controlling principle to effect substantial justice.
The rule requiring notice to herein private respondents as defendant and
intervenors in the lower court with respect to the hearing of the motion filed by herein
petitioner for the reconsideration of the decision of respondent Judge, has been
substantially complied with. While the notice was addressed only to the clerk of
court, a copy of the said motion for reconsideration was furnished counsel of
herein private respondents, which fact is not denied by private respondent. As a
matter of fact, private respondents filed their opposition to the said motion for
reconsideration dated January 14, 1981 after the hearing of the said motion was
deferred and re-set twice from December 8, 1980, which was the first date set for its
hearing as specified in the notice. Hence, private respondents were not denied their
day in court with respect to the said motion for reconsideration. The fact that the
respondent Judge issued his order on January 15, 1981 denying the motion for
reconsideration for lack of merit as it merely repeated the same grounds raised in the
memorandum of herein petitioner as plaintiff in the court below, one day after the
opposition to the motion for reconsideration was filed on January 14, 1981 by herein
private respondents, demonstrates that the said opposition of herein respondents was
considered by the respondent Judge.
xxx xxx xxx
The motion for reconsideration of herein petitioner, while substantially based on the same
grounds he invoked in his memorandum after the case was submitted for decision, is
not pro forma as it points out specifically the findings or conclusions in the
judgment which he claims are not supported by the evidence or which are
contrary to law (City of Cebu v. Mendoza, L-26321, Feb. 25, 1975, 62 SCRA 440,
446), aside from stating additional specific reasons for the said grounds.
(Emphasis supplied)
Thus, even if the Motion may be defective for failure to address the notice of hearing of
said motion to the parties concerned, the defect was cured by the court's taking
cognizance thereof and the fact that the adverse party was otherwise notified of the
existence of said pleading. There is substantial compliance with the foregoing rules if a
copy of the said motion for reconsideration was furnished to the counsel of herein private
respondents.
In the present case, records reveal that the notices in the Motion were addressed to the
respective counsels of the private respondents and they were duly furnished with copies
of the same as shown by the receipts signed by their staff or agents.
Consequently, the Court finds that the petitioner substantially complied with the pertinent
provisions of the Rules of Court and existing jurisprudence on the requirements of
motions and pleadings.31
Section 6, Rule 1 of the Rules provides that the rules should be liberally construed in
order to promote their objective of securing a just, speedy and inexpensive disposition of
every action and proceeding. Rules of procedure are tools designed to facilitate the
attainment of justice, and courts must avoid their strict and rigid application which would
result in technicalities that tend to frustrate rather than promote substantial justice.32 A
liberal construction is proper where the lapse in the literal observance of a procedural rule
has not prejudiced the adverse party and has not deprived the court of its authority.33
With regard the rules on notice of hearing on a motion, the CA correctly held that the test
is the presence of the opportunity to be heard, as well as to have time to study the
motion and meaningfully oppose or controvert the grounds upon which it is
based.34 Considering that STEELCORP was afforded the opportunity to be heard through
the pleadings filed in opposition to the motions of the OSG and the BIR, We view that the
requirements of procedural due process were substantially complied with and that the
compliance justified a departure from a literal application of the rules.
The CA also did not err in affirming the June 6, 2012 Order of the RTC which dissolved
the writ of preliminary injunction and dismissed STEELCORP's complaint for lack of
jurisdiction.
Certainly, the consent of the parties does not confer jurisdiction over the subject matter.
Jurisdiction cannot be waived; it is not dependent on the consent or objection or the acts
or omissions of the parties or any one of them.35 The jurisdiction of the court over a
subject matter is conferred only by the Constitution or by law as well as determined by
the allegations in the complaint and the character of the relief sought.36
In reverting to the earlier rulings that upheld the exclusive jurisdiction of the CTA to
determine the constitutionality or validity of tax laws, rules and regulations, and other
administrative issuances, this Court recently elucidated in Banco De Oro v. Republic of the
Philippines37 the subject matter jurisdiction of the CTA:
On June 16, 1954, Republic Act No. 1125 created the Court of Tax Appeals not as another
superior administrative agency as was its predecessor - the former Board of Tax Appeals
- but as a part of the judicial system with exclusive jurisdiction to act on appeals from:
(1) Decisions of the Collector of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges; seizure, detention or release of property affected
fines, forfeitures or other penalties imposed in relation thereto; or other matters arising
under the Customs Law or other law or part of law administered by the Bureau of
Customs; and
(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the
assessment and taxation of real property or other matters arising under the Assessment
Law, including rules and regulations relative thereto.
Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over
all matters involving assessments that were previously cognizable by the
Regional Trial Courts (then courts of first instance).
In 2004, Republic Act No. 9282 was enacted. It expanded the jurisdiction of the Court of
Tax Appeals and elevated its rank to the level of a collegiate court with special
jurisdiction. Section 1 specifically provides that the Court of Tax Appeals is of the same
level as the Court of Appeals and possesses "all the inherent powers of a Court of
Justice."
Section 7, as amended, grants the Court of Tax Appeals the exclusive
jurisdiction to resolve all tax-related issues:
Section 7. Jurisdiction. - The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue;
2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;
3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction;
4) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property affected,
fines, forfeitures or other penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the Bureau of Customs;
5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals;
6) Decisions of the Secretary of Finance on customs cases elevated to him automatically
for review from decisions of the Commissioner of Customs which are adverse to the
Government under Section 2315 of the Tariff and Customs Code;
7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural
product, commodity or article, and the Secretary of Agriculture in the case of agricultural
product, commodity or article, involving dumping and countervailing duties under Section
301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the decision to impose or
not to impose said duties.
The Court of Tax Appeals has undoubted jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation when raised by the
taxpayer as a defense in disputing or contesting an assessment or claiming a
refund. It is only in the lawful exercise of its power to pass upon all matters
brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as
amended.
This Court, however, declares that the Court of Tax Appeals may likewise take cognizance
of cases directly challenging the constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue memorandum circulars, rulings).
Section 7 of Republic Act No. 1125, as amended, is explicit that, except for local
taxes, appeals from the decisions of quasi-judicial agencies (Commissioner of
Internal Revenue, Commissioner of Customs, Secretary of Finance, Central
Board of Assessment Appeals, Secretary of Trade and Industry) on tax-related
problems must be brought exclusively to the Court of Tax Appeals.
In other words, within the judicial system, the law intends the Court of Tax Thus, despite the amendments to the law, the Court still holds that the CTA has ample
Appeals to have exclusive jurisdiction to resolve all tax problems. Petitions for authority to issue injunctive writs to restrain the collection of tax and to even dispense
writs of certiorari against the acts and omissions of the said quasi-judicial agencies with the deposit of the amount claimed or the filing of the required bond,
should, thus, be filed before the Court of Tax Appeals. whenever the method employed by the CIR in the collection of tax jeopardizes the
interests of a taxpayer for being patently in violation of the law. Such authority
emanates from the jurisdiction conferred to it not only by Section 11 of R.A. No. 1125,
Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129 provides an
but also by Section 7 of the same law, which, as amended provides:
exception to the original jurisdiction of the Regional Trial Courts over actions questioning
the constitutionality or validity of tax laws or regulations. Except for local tax cases,
actions directly challenging the constitutionality or validity of a tax law or regulation or Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
administrative issuance may be filed directly before the Court of Tax Appeals.
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
Furthermore, with respect to administrative issuances (revenue orders, revenue
memorandum circulars, or rulings), these are issued by the Commissioner under its
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
power to make rulings or opinions in connection with the implementation of the provisions
assessments, refunds of internal revenue taxes, fees or other charges, penalties
of internal revenue laws. Tax rulings, on the other hand, are official positions of the
imposed in relation thereto, or other matters arising under the National Internal
Bureau on inquiries of taxpayers who request clarification on certain provisions of the
Revenue or other laws administered by the Bureau of Internal Revenue. x x x x
National Internal Revenue Code, other tax laws, or their implementing regulations.
[Emphasis Supplied]
Hence, the determination of the validity of these issuances clearly falls within the
exclusive appellate jurisdiction of the Court of Tax Appeals under Section 7 (1) of
Republic Act No. 1125, as amended, subject to prior review by the Secretary of Finance, From all the foregoing, it is clear that the authority of the courts to issue injunctive writs
as required under Republic Act No. 8424.38 to restrain the collection of tax and to dispense with the deposit of the amount claimed or
the filing of the required bond is not simply confined to cases where prescription
has set in. As explained by the Court in those cases, whenever it is determined by
With the enactment of R.A. No. 1125, the CTA was granted the exclusive appellate
the courts that the method employed by the Collector of Internal Revenue in the
jurisdiction to review by appeal all cases involving disputed assessments of internal
collection of tax is not sanctioned by law, the bond requirement under Section 11 of
revenue taxes, customs duties, and real property taxes.39 In general, it has jurisdiction
R.A. No. 1125 should be dispensed with. The purpose of the rule is not only to prevent
over cases involving liability for payment of money to the Government or the
jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd
administration of the laws on national internal revenue, customs, and real property.40As
situation wherein the court would declare "that the collection by the summary methods of
held in Ollada v. Court of Tax Appeals, et al. :41
distraint and levy was violative of law, and then, in the same breath require the petitioner
to deposit or file a bond as a prerequisite for the issuance of a writ of injunction."45
Note that the law gives to the Court of Tax Appeals exclusive appellate jurisdiction to
review the decisions of the Collector of Internal Revenue, the Commissioner of Customs,
WHEREFORE, the petition for review on certiorari is DENIED. The November 19, 2014
and the provincial or city Boards of Assessment Appeals. Note also that in defining the
Decision and September 15, 2015 Resolution of the Court of Appeals in CA-G.R. SP No.
cases that may be reviewed the law begins by enumerating them and then adds a general
127046 are AFFIRMED.
clause pertaining to other matters that may arise under the National Internal Revenue
Code, the Customs Law and the Assessment Law. This shows that the "other matters"
that may come under the general clause should be of the same nature as those SO ORDERED.
that have preceded them applying the rule of construction known as ejusdem
generis. In other words, in order that a matter may come under the general
clause, it is necessary that it belongs to the same kind or class therein Carpio, J. (Chairperson), Perlas-Bernabe, and Reyes, Jr., JJ., concur.
specifically enumerated. Otherwise, it should be deemed foreign or extraneous Caguioa, J., on official business.
and is not included.42

From the clear purpose of R.A. No. 1125 and its amendatory laws, the CTA, therefore, is
the proper forum to file the appeal. Matters calling for technical knowledge should be
handled by such court as it has the specialty to adjudicate tax, customs, and assessment
cases.43

Section 11, Paragraph 4 of R.A. No. 1125, as amended by R.A. No. 9282, embodies the
rule that an appeal to the CTA will not suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability as provided by
existing law. Nonetheless, when, in the opinion of the CTA, the collection may jeopardize
the interest of the Government and/or the taxpayer, it may suspend the said collection
and require the taxpayer either to deposit the amount claimed or to file a surety bond for
not more than double the amount. Yet the requirement of deposit or surety bond may be
dispensed with. We held in Pacquiao v. Court of Tax Appeals, First Division:44
 SECOND DIVISION
G.R. No. 213394, April 06, 2016
SPOUSES EMMANUEL D. PACQUIAO AND JINKEE J.
PACQUIAO, Petitioners, v. THE COURT OF TAX APPEALS - FIRST DIVISION
AND THE COMMISSION OF INTERNAL REVENUE, Respondents.
DECISION
MENDOZA, J.:
Before this Court is a petition for review on certiorari1 under Rule 65 of the Rules of
Court filed by petitioner spouses, now Congressman Emmanuel D. Pacquiao
(Pacquiao) and Vice-Governor Jinkee J. Pacquiao (Jinkee), to set aside and annul
the April 22, 2014 Resolution2 and the July 11, 2014 Resolution3 of the Court of Tax
Appeals (CTA), First Division, in CTA Case No. 8683.
Through the assailed issuances, the CTA granted the petitioners' Urgent Motion to
Lift Warrants of Distraint & Levy and Garnishment and for the Issuance of an Order
to Suspend the Collection of Tax (with Prayer for the Issuance of a Temporary
Restraining Order4[Urgent Motion], dated October 18, 2013, but required them, as a
condition, to deposit a cash bond in the amount of P3,298,514,894.35-or post a
bond of P4,947,772,341.53.
The Antecedents
The genesis of the foregoing controversy began a few years before the petitioners
became elected officials in their own right. Prior to their election as public officers,
the petitioners relied heavily on Pacquiao's claim to fame as a world-class
professional boxer. Due to his success, Pacquiao was able to amass income from
both the Philippines and the United States of America (US). His income from the US
came primarily from the purses he received for the boxing matches he took part
under Top Rank, Inc. On the other hand, his income from the Philippines consisted
of talent fees received from various Philippine corporations for product
endorsements, advertising commercials and television appearances.
In compliance with his duty to his home country, Pacquiao filed his 2008 income tax
return on April 15, 2009 reporting his Philippine-sourced income.5 It was
subsequently amended to include his US-sourced income.6
The controversy began on March 25, 2010, when Pacquiao received a Letter of
Authority7(March LA) from the Regional District Office No. 43 (RDO) of the Bureau of
Internal Revenue (BIR) for the examination of his books of accounts and other
accounting records for the period covering January 1, 2008 to December 31, 2008.
On April 15, 2010, Pacquiao filed his 2009 income tax return,8 which although
reflecting his Philippines-sourced income, failed to include his income derived from
his earnings in the US.9 He also failed to file his Value Added Tax (VAT) returns for
the years 2008 and 2009.10
Finding the need to directly conduct the investigation and determine the tax
liabilities of the petitioners, respondent Commissioner on Internal
Revenue (CIR) issued another Letter of Authority, dated July 27, 2010 (July LA),
authorizing the BIR's National Investigation Division (NID) to examine the books of
accounts and other accounting records of both Pacquiao and Jinkee for the last 15
years, from 1995 to 2009.11 On September 21, 2010 and September 22, 2010, the
CIR replaced the July LA by issuing to both Pacquiao12 and Jinkee13separate
electronic versions of the July LA pursuant to Revenue Memorandum
Circular (RMC) No. 56-2010.14
Due to these developments, the petitioners, through counsel, wrote a
letter15 questioning the propriety of the CIR investigation. According to the
petitioners, they were already subjected to an earlier investigation by the BIR for
the years prior to 2007, and no fraud was ever found to have been committed. They
added that pursuant to the March LA issued by the RDO, they were already being
investigated for the year 2008.
In its letter,16 dated December 13, 2010, the NID informed the counsel of the
petitioners that the July LA issued by the CIR had effectively cancelled and
superseded the March LA issued by its RDO. The same letter also stated that:
Although fraud had been established in the instant case as determined by
the Commissioner, your clients would still be given the opportunity to present
documents as part of their procedural rights to due process with regard to the civil
aspect thereof. Moreover, any tax credits and/or payments from the taxable year
2007 & prior years will be properly considered and credited in the current
investigation.17
[Emphasis Supplied]
The CIR informed the petitioners that its reinvestigation of years prior to 2007 was
justified because the assessment thereof was pursuant to a "fraud investigation"
against the petitioners under the "Run After Tax Evaders" (RATE) program of the
BIR.
On January 5 and 21, 2011, the petitioners submitted various income tax related
documents for the years 2007-2009.18 As for the years 1995 to 2006, the petitioners
explained that they could not furnish the bureau with the books of accounts and
other, tax related documents as they had already been disposed in accordance with
Section 235 of the Tax Code.19They added that even if they wanted to, they could no
longer find copies of the documents because during those years, their accounting
records were then managed by previous counsels, who had since passed away.
Finally, the petitioners pointed out that their tax liabilities for the said years had
already been fully settled with then CIR Jose Mario Buñag, who after a review,
found no fraud against them.20
On June 21; 2011, on the same day that the petitioners made their last compliance
in submitting their tax-related documents, the CIR issued a subpoena duces
tecum21 requiring the petitioners rto submit additional income tax and VAT-related
documents for the years 1995-2009.
After conducting its own- investigation, the CIR made its initial assessment finding
that the petitioners were unable to fully settle their tax liabilities. Thus, the CIR
issued its Notice of Initial Assessment-Informal Conference (NIC),22 dated January
31, 2012, directly addressed to the petitioners, informing them that based on
the best evidence obtainable, they were liable for deficiency income taxes in the
amount of P714,061,116.30 for 2008 and P1,446,245,864.33 for 2009, inclusive of
interests and surcharges. After being informed of this development, the counsel for
the petitioners sought to have the conference reset but he never received a
response.
Then, on "February 20, 2012, the CIR issued the Preliminary Assessment
Notice23(PAN), informing the petitioners that based on third-party
information allowed under Section 5(B)24and 6 of the National Internal Revenue
Code (NIRC),25 they found the petitioners liable not only for deficiency income
taxes in the amount of P714,061,116.30 for 2008 and P1,446;245,864.33 for
2009, but aiso for their non-payment of their VAT liabilities in the amount
P4,104,360.01 for 2008 and P 24,901,276.77 for 2009.
The petitioners filed their protest against the PAN.26
After denying the protest, the BIR issued its Formal Letter Demand27(FLD), dated
May 2, 2012, finding the petitioners liable for deficiency income tax and VAT
amounting to P766,899,530.62 for taxable years 2008 and P1,433,421,214.61 for
2009, inclusive of interests and surcharges. Again, the petitioners questioned the
findings of the CIR.28
On May 14, 2013, the BIR issued its Final Decision on Disputed
Assessment (FDDA),29 addressed to Pacquiao only, informing him that the CIR found
him liable for deficiency income tax and VAT for taxable years 2008 and 2009
which, inclusive of interests and surcharges, amounted to a total of
P2,261,217,439.92.
Seeking to collect the total outstanding tax liabilities of the petitioners, the Accounts
Receivable Monitoring Division of the BIR (BIR-ARMD), issued the Preliminary
Collection Letter (PCL),30 dated July 19, 2013, demanding that both Pacquiao and
Jinkee pay the amount of P2,261,217,439.92, inclusive of interests and surcharges.
Then, on August 7, 2013, the BIR-ARMD sent Pacquiao and Jinkee the Final Notice
Before Seizure (FNBS),31 informing the petitioners of their last opportunity to make
the necessary settlement of deficiency income and VAT liabilities before the bureau
would proceed against their property.
Although they no longer questioned the BIR's assessment of their deficiency VAT
liability, the petitioners requested that they be allowed to pay the same in four (4)
quarterly installments. Eventually, through a series of installments, Pacquiao and
Jinkee paid a total P32,196,534.40 in satisfaction of their liability for deficiency
VAT.32
Proceedings at the CTA
Aggrieved that they were being made liable for deficiency income taxes for the
years 2008 and 2009, the petitioners sought redress and filed a petition for
review33 with the CTA.
Before the CTA, the petitioners contended that the assessment of the CIR was
defective because it was predicated on its mere allegation that they were guilty of
fraud.34
They also questioned the validity of the attempt by the CIR to collect deficiency
taxes from Jinkee, arguing that she was denied due process. According to the
petitioners, as all previous communications and notices from the CIR were
addressed to both petitioners, the FDDA was void because it was only addressed to
Pacquiao. Moreover, considering that the PCL and FNBS were based on the FDDA,
the same should likewise be declared void.35
The petitioners added that the CIR assessment, which was not based on actual
transaction documents but simply on "best possible sources," was not
sanctioned by the Tax Code. They also argue that the assessment failed to consider
not only the taxes paid by Pacquiao to the US authorities for his fights, but also the
deductions claimed by him for his expenses.36
Pending the resolution by the CTA of their appeal, the petitioners sought the
suspension of the issuance of warrants of distraint and/or levy and warrants of
garnishment.37
Meanwhile, in a letter,38 dated October 14, 2013, the BIR-ARMD informed the
petitioners that they were denying their request to defer the collection enforcement
action for lack of legal basis. The same letter also informed the petitioners that
despite their initial payment, the amount to be collected from both of them still
amounted to P3,259,643,792.24, for deficiency income tax for taxable years
2008 and 2009, and P46,920,235.74 for deficiency VAT for the same period. A
warrant of distraint and/or levy39 against Pacquiao and Jinkee was included in the
letter.
Aggrieved, the petitioners filed the subject Urgent Motion for the CTA to lift the
warrants of distraint, levy and garnishments issued by the CIR against their .assets
and to enjoin the CIR from collecting the assessed deficiency taxes pending the
resolution of their appeal. As for- the cash deposit and bond requirement under
Section 11 of Republic Act (R.A.) No. 1125, the petitioners question the necessity
thereof, arguing that the CIR's assessment of their tax liabilities was highly
questionable. At the same time, the petitioners manifested that they were willing to
file a bond for such reasonable amount to be fixed by the tax court.
On April 22, 2014, the CTA issued the first assailed resolution granting the
petitioner's Urgent Motion, ordering the CIR to desist from collecting on the
deficiency tax assessments against the petitioners. In its resolution, the CTA noted
that the amount sought to be collected was way beyond the petitioners' net worth,
which, based on Pacquiao's Statement of Assets, Liabilities and Net Worth (SALN),
only amounted to P1,185,984,697.00. Considering that the petitioners still needed
to cover the costs of their daily subsistence, the CTA opined that the collection of
the total amount of P3,298,514,894.35 from the petitioners would be highly
prejudicial to their interests and should, thus, be suspended pursuant to Section 11
of R.A. No. 1125, as amended.
The CTA, however, saw no justification that the petitioners should deposit less than
the disputed amount. They were, thus, required to deposit the amount of
P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53.
The petitioners sought partial reconsideration of the April 22, 2014 CTA resolution,
praying for the reduction of the amount of the bond required or an extension of 30
days to file the same. On July 11, 2014, the CTA issued the second assailed
resolution40 denying the petitioner's motion to reduce the required cash deposit or
bond, but allowed them an extension of thirty (30) days within which to file the
same.
Hence, this petition, raising the following
 GROUNDS
A.
Respondent Court acted with grave abuse of discretion amounting to lack
or excess of jurisdiction in presuming the correctness of a fraud
assessment without evidentiary support other than the issuance of the
fraud assessments themselves, thereby violating Petitioner's constitutional
right to due process.
B.
Respondent Court acted with grave abuse of discretion amounting to lack
or excess of jurisdiction when it required the Petitioners to post a bond
even if the tax collection processes employed by Respondent Commissioner
against Petitioners was patently in violation of law thereby blatantly
breaching Petitioners' constitutional right to due process, to wit:
Respondent Commissioner commenced tax collection process against
Jinkee without issuing or serving an FDDA against her.
Respondent Commissioner failed to comply with the procedural due
process requirements for summary tax collection remedies under Sections
207(A) and (B) of the Tax Code when she commenced summary collection
remedies before the expiration of the period for Petitioners to pay the
assessed deficiency taxes.
Respondent Commissioner failed to comply with the procedural due
process requirements for summary tax collection remedies under Section
208 of the Tax Code when she failed to serve Petitioners with warrants of
garnishment against their bank accounts.
The Chief of the ARMD, without any authority from Respondent
Commissioner, increased the aggregate amount of deficiency income tax
and VAT assessed against Petitioners from P2,261,217,439.92 to
P3,298,514,894.35 after the filing of the Petition for Review with the Court
of Tax Appeals.
Respondent Commissioner arbitrarily refused to admit that Petitioners had
already paid the deficiency VAT assessments for the years 2008 and 2009.
C.
Respondent Court acted with grave abuse of discretion amounting to lack
or excess of jurisdiction in requiring Petitioners to post a cash bond in the
amount of P3,298,514,894.35 or a surety bond in the amount of
P4,947,772,341.53, which is effectively an impossible condition given that
their undisputed net worth is only P1,185,984,697.00.
D.
Respondent Court acted with grave abuse of discretion amounting to lack
or excess of jurisdiction when it imposed a bond requirement which will
effectively prevent Petitioners from continuing the prosecution of its
appeal from the arbitrary and bloated assessments issued by Respondent
Commissioner.41
Arguments of the Petitioners
Contending that the CTA En Bane has no certiorari jurisdiction over interlocutory
orders issued by its division, the petitioners come before the Court, asking it to 1]
direct the CTA to dispense with the bond requirement imposed under Section 11 of
R.A. No. 1125, as amended; and 2] direct the CIR to suspend the collection of the
deficiency income tax and VAT for the years 2008 and 2009. The petitioners also
pray that a temporary restraining order (TRO) be issued seeking a similar relief
pending the disposition of the subject petition.
In support of their position, the petitioners assert that the CTA acted with grave
abuse of discretion amounting to lack or excess of jurisdiction in requiring them to
provide security required under Section 11 of R.A. No. 1125. Under the
circumstances, they claim that they should not be required to make a cash deposit
or post a bond to stay the collection of the questioned deficiency taxes considering
that the assessment and collection efforts of the BIR was marred by both procedural
and substantive errors. They are synthesized as follows:
First. The CTA erred when it required them to make a cash deposit or post a bond
on the basis of the fraud assessment by the CIR. Similar to the argument they
raised in their petition for review with the CTA, they insist that the fraud
assessment by the CIR could not serve as basis for security because the amount
assessed by the CIR was made without evidentiary basis,42 but just grounded on the
"best possible sources," without any detail.
Second... The BIR failed to accord them procedural due process when it initiated
summary collection remedies even before the expiration of the period allowed for
them to pay the assessed deficiency taxes.43 They also claimed that they were not
served with warrants of garnishment and that the warrants of garnishment served
on their banks of account were made even before they received the FDDA and PCL.44
Third. The BIR only served the FDDA to Pacquiao. There was no similar notice to
Jinkee. Considering such failure, the CIR effectively did not find Jinkee liable for
deficiency taxes. The collection of deficiency taxes against Jinkee was improper as it
violated her right to due process of law.45 Accordingly, the petitioners question the
propriety of the CIR's attempt to collect deficiency taxes from Jinkee.
Fourth. The amount assessed by the BIR as deficiency taxes included the deficiency
VAT for the years 2008 and 2009 which they had already paid, albeit in
installments.
Fifth. The posting of the required security is effectively an impossible condition
given that their undisputed net worth is only P1,185,984,697.00
Considering the issues raised, it is the position of the petitioners that the
circumstances of the case warrant the application of the exception provided under
Section 11 of R.A. No. 1125 as affirmed by the ruling of the Court in Collector of
Internal Revenue v. Avelino46 (Avelino) and Collector of Internal Revenue v.
Zulueta,47 (Zulueta) and that they should have been exempted from posting the
required security as a prerequisite to suspend the collection of deficiency taxes from
them.
On August 18, 2014, the Court resolved to grant the petitioners' prayer for the
issuance of a TRO and to require the CIR to file its comment.48
Arguments of the CIR
For its part,- the CIR asserts that the CTA was correct in insisting that the
petitioners post the required cash deposit or bond as a condition to suspend the
collection of deficiency taxes. According to. the tax administrator, Section 11 of R.A.
No. 1125, as amended, is without exception when it states that notwithstanding an
appeal to the CTA, a taxpayer, in order to suspend the payment of his tax liabilities,
is required to deposit the amount claimed by the CIR or to file a surety bond for not
more than double the amount due.49
As for the Court's rulings in Avelino and Zulueta invoked by the petitioners, the CIR
argues that they are inapplicable considering that in the said cases, it was ruled
that the requirement of posting a bond to suspend the collection of taxes could be
dispensed with only if the methods employed by the CIR in the tax collection were
clearly null and void and prejudicial to the taxpayer.50 The CIR points out that, in
this case, the CTA itself made, no finding that its collection by summary methods
was void and even ruled that "the alleged illegality of the methods employed by the
respondent (CIR) to effect the collection of tax [is] not at all patent or evident xxx"
and could only be determined after a full-blown trial.51The CIR even suggests that
the Court revisit its ruling in Avelino and Zulueta as Section 11 of R.A. No. 1125, as
amended, gives the CTA no discretion to allow the dispensation of the required bond
as a condition to suspend the collection of taxes.
Finally, the CIR adds that whether the assessment and collection of the petitioners'
tax liabilities were proper as to justify the application of Avelino and Zulueta is a
question of fact which is not proper in a petition for certiorari under Rule 65,
considering that the rule is only confined to issues of jurisdiction.52
The Court's Ruling
Appeal will not suspend
the collection of tax;
Exception
Section 11 of R.A. No. 1125, as amended by R.A. No. 9282,53 embodies the rule that
an appeal to the CTA from the decision of the CIR will not suspend the payment,
levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his
tax liability as provided by existing law. When, in the view of the CTA, the collection
may jeopardize the interest of the Government and/or the taxpayer, it may suspend
the said collection and require the taxpayer either to deposit the amount claimed or
to file a surety bond.
The application of the exception to the rule is the crux of the subject controversy.
Specifically, Section 11 provides:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely
affected by a decision, ruling or inaction of the Commissioner of Internal Revenue,
the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days
after the receipt of such decision or ruling or after the expiration of the period fixed
by law for action as referred to in Section 7(a)(2) herein.
xxxx
No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial,
city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as the case may be shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law:
Provided, however, That when in the opinion of the Court the collection by
the aforementioned government agencies may jeopardize the interest of
the Government and/or the taxpayer, the Court at any stage of the
proceeding may suspend the said collection and require the taxpayer either
to deposit the amount claimed or to file a surety bond for not more than
double the amount with the Court.
xxxx
[Emphasis Supplied]
Essentially, the petitioners ascribe grave abuse of discretion on the part of the CTA
when it issued the subject resolutions requiring them to deposit-the amount of
P3,298,514,894.35 or post a bond in the amount of P4,947,772,341.53 as a
condition for its order enjoining the CIR from collecting the taxes from them. The
petitioners anchor their contention on the premise that the assessment and
collection processes employed by the CIR in exacting their tax liabilities were in
patent violation of their constitutional right to due process of law. They, thus, posit
that pursuant to Avelino and Zulueta, the tax court should have not only ordered
the CIR to suspend the collection efforts it was pursuing in satisfaction of their tax
liability, but also dispensed with the requirement of depositing a cash or filing a
surety bond.
To recall, the Court in Avelino upheld the decision of the CTA to declare the
warrants of garnishment, distraint and levy and the notice of sale of the properties
of Jose Avelino null and void and ordered the CIR to desist from collecting the
deficiency income taxes which were assessed for the years 1946 to 1948 through
summary administrative methods. The Court therein found that the demand of the
then CIR was made without authority of law because it was made five (5) years and
thirty-five (35) days after the last two returns of Jose Avelino were filed - clearly
beyond the three (3)-year prescriptive period provided under what was then Section
51(d) of the National Internal Revenue Code. Dismissing the contention of the CIR
that the deposit of the amount claimed or the filing of a bond as required by law
was a requisite before relief was granted, the Court therein concurred with the
opinion of the CTA that the courts were clothed with authority to dispense with the
requirement "if the method employed by the Collector of Internal Revenue in the
collection of tax is not sanctioned by law."54
In Zulueta, the Court likewise dismissed the argument that the CTA erred in issuing
the injunction without requiring the taxpayer either to deposit the amount claimed
or to file a surety bond for an amount not more than double the tax sought to be
collected. The Court cited Collector of Internal Revenue v. Aurelio P. Reyes and the
Court of Tax Appeals55 where it was written:
Xxx. At first blush it might be as contended by the Solicitor General, but a careful
analysis of the second paragraph of said Section 11 will lead Us to the conclusion
that the requirement of the bond as a condition precedent to the issuance of a writ
of injunction applies only in cases where the processes by which the collection
sought to be made by means thereof are carried out in consonance with law for
such cases provided and not when said processes are obviously in violation of the
law to the extreme that they have to be SUSPENDED for jeopardizing the interests
of the taxpayer.56
[Italics included]
The Court went on to explain the reason for empowering the courts to issue such
injunctive writs. It wrote:
"Section 11 of Republic Act No. 1125 is therefore premised on the assumption that
the collection by summary proceedings is by itself in accordance with existing laws;
and then what is suspended is the act of collecting, whereas, in the case at bar what
the respondent Court suspended was the use of the method employed to verify the
collection which was evidently illegal after the lapse of the three-year limitation
period. The respondent Court issued the injunction in question on the basis of its
findings that the means intended to be used by petitioner in the collection of the
alleged deficiency taxes were in violation of law. It would certainly be an
absurdity on the part of the Court of Tax Appeals to declare that the
collection by the summary methods of distraint and levy was violative of
the law, and then, on the same breath require the petitioner to deposit or
file a bond as a prerequisite of the issuance of a writ of injunction. Let us
suppose, for the sake of argument, that the Court a quo would have required the
petitioner to post the bond in question and that the taxpayer would refuse or fail to
furnish said bond, would the Court a quo be obliged to authorize or allow the
Collector of Internal Revenue to proceed with the collection from the petitioner of
the taxes due by a means it previously declared to be contrary to law?"57
[Italics included. Emphases and Underlining Supplied]
Thus, despite the amendments to the law, the Court still holds that the CTA has
ample authority to issue injunctive writs to restrain the collection of tax and to
even dispense with the deposit of the amount claimed or the filing of the
required bond, whenever the method employed by the CIR in the collection of.
tax jeopardizes the interests of a taxpayer for being patently in violation of the
law. Such authority emanates from the jurisdiction conferred to it not only by
Section 11 of R.A. No. 1125, but also by Section 7 of the same law, which, as
amended provides:
Sec. 7. Jurisdiction. - The Court of Tax Appeals shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
l. Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal
Revenue;
xxxx
[Emphasis Supplied]
From all the foregoing, it is clear that the authority of the courts to issue injunctive
writs to restrain the collection of tax and to dispense with the deposit of the amount
claimed or the filing of the required bond is not simply confined to cases where
prescription has set in. As explained by the Court in those cases, whenever it is
determined by the courts that the method employed by the Collector of
Internal Revenue in the collection of tax is not sanctioned by
law, the bond requirement under Section 11 of R.A. No. 1125should be
dispensed with. The purpose of the rule is not only to prevent jeopardizing the
interest of the taxpayer, but more importantly, to prevent the absurd situation
wherein the court would declare "that the collection by the summary methods of
distraint and levy was violative of law, and then, in the same breath require the
petitioner to deposit or file a bond as a prerequisite for the issuance of a writ of
injunction."58
The determination of whether
the petitioners.' case falls
within the exception provided
under Section 11, R.A No. 1125
cannot be determined
at this point
Applying the foregoing precepts to the subject controversy, the Court finds no
sufficient basis in the records for the Court to determine whether the dispensation
of the required cash deposit or bond provided under Section 11, R.A No. 1125 is
appropriate.
It should first be highlighted that in rendering the assailed resolution, the CTA,
without stating the facts and law, made a determination that the illegality of the
methods employed by the CIR to effect the collection of tax was not patent. To
quote the CTA:
In this case, the alleged illegality of the methods employed by respondent to effect
the collection of tax is not at all patent or evident as in the foregoing cases.
At this early stage of the proceedings, it is premature for this Court to rule on the
issues of whether or not the warrants were defectively issued; or whether the
service thereof was done in violation of the rules; or whether or not respondent's
assessments were valid. These matters are evidentiary in nature, the
resolution of which can only be made after a full blown trial.
Apropos, the Court finds no legal basis to apply Avelino and Zulueta to the instant
case and exempt petitioners from depositing a cash bond or filing a surety bond
before a suspension order may be effected.59
ChanRobles Virtualawl ibra ry
Though it may be true that it would have been premature for the CTA to
immediately determine whether the assessment made against the petitioners was
valid or whether the warrants were properly issued and served, still, it behooved
upon the CTA to properly determine, at least preliminarily, whether the CIR, in
its assessment of the tax liability of the petitioners, and its effort of collecting the
same, complied with the law and the pertinent issuances of the BIR
itself. The CTA should have conducted a preliminary hearing and received evidence
so it could have properly determined whether the requirement of providing the
required security under Section 11, R.A. No. 1125 could be reduced or dispensed
withpendente lite.

The Court cannot make a
preliminary determination
on whether the CIR used
methods not sanctioned by law
Absent any evidence and preliminary determination by the CTA, the Court cannot
make any factual finding and settle the issue of whether the petitioners should
comply with the security requirement under Section 11, R.A. No. 1125. The
determination of whether the methods, employed by the CIR in its assessment,
jeopardized the interests of a taxpayer for being patently in violation of the law is a
question of fact that calls for the reception of evidence which would serve as
basis. In this regard, the CTA is in a better position to initiate this given its time and
resources. The remand of the "case to the CTA on this question is, therefore, more
sensible and proper.
For the Court to make any finding of fact on this point would be premature. As
stated earlier, there is no evidentiary basis. All the arguments are mere allegations
from both sides. Moreover, any finding by the Court would pre-empt the
CTA from properly exercising its jurisdiction and settle the main issues presented
before it, that is, whether the petitioners were afforded due process; whether the
CIR has valid basis for its assessment; and whether the petitioners should be held
liable for the deficiency taxes.
Petition to be remanded to
the CTA; CTA to conduct
preliminary hearing
As the CTA is in a better, position to make such a preliminary determination, a
remand to the CTA is in order. To resolve the issue of whether the petitioners
should be required to post the security bond under Section 11 of R.A. No. 1125,
and, if so, in what, amount, the CTA must take into account, among others, the
following:
First. Whether the requirement of a Notice of Informal Conference was complied
with - The petitioners contend that the BIR issued the PAN without first sending a
NIC to petitioners. One of the first requirements of Section 3 of Revenue
Regulation (R.R.) No. 12-99,60 the then prevailing regulation on the due process
requirement in tax audits and/or investigation,61is that a NIC be first accorded to the
taxpayer. The use of the word "shall" in subsection 3.1.1 describes the mandatory
nature of the service of a NIC. As with the other notices required under the
regulation, the purpose of sending a NIC is but part of the "due process requirement
in the issuance of a deficiency tax assessment," the absence of which renders
nugatory any assessment made by the tax authorities.62
Second. Whether the 15-year period subject of the CIR's investigation is arbitrary
and excessive. - Section 20363 of the Tax Code provides a 3-year limit for the
assessment. of internal revenue taxes. While the prescriptive period to assess
deficiency taxes may be extended to 10 years in cases where there is false,
fraudulent, or non-filing of a tax return - the fraud contemplated by law must be
actual. It must be intentional, consisting of deception willfully and deliberately done
or resorted to in order to induce another to give up some right.64
Third. Whether fraud was duly established. - In its letter, dated December 13,
2010, the NID had been conducting a fraud investigation against the petitioners
under its RATE program and that it found that "fraud had been established in the
instant case as determined by the Commissioner." Under Revenue Memorandum
Order (RMO) No. 27-10, it is required that a preliminary investigation must first
be conducted before a LA is issued.65
Fourth. Whether the FLD issued against the petitioners was irregular. - The FLD
issued against the petitioners allegedly stated that the amounts therein were
"estimates based on best possible sources." A taxpayer should be informed in
writing of the law and the facts on which the assessment is made, otherwise, the
assessment is void.66 An assessment, in order to stand judicial scrutiny, must be
based on facts. The presumption of the correctness of an assessment, being a mere
presumption, cannot be made to rest on another presumption.67
To stress, the petitioners had asserted that the assessment of the CIR was not
based on actual transactions but on "estimates based on best possible
sources." This assertion has not been satisfactorily addressed by the CIR in detail.
Thus, there is a need for the CTA to conduct a preliminary hearing.
Fifth. Whether the FDDA, the PCL, the FNBS, and the Warrants of Distraint and/or
Levy were validly issued. In its hearing, the CTA must also determine if the
following allegations of the petitioners have merit:,
a. The FDDA and PCL were issued against petitioner Pacquiao only. The Warrant of
Distraint and/or Levy/Garnishment issued by the CIR, however, were made against
the assets of both petitioners;
b. The warrants of garnishment had been served on the banks of both
petitioners even before the petitioners received the FDDA and PCL;
c. The Warrant of Distraint and/or Levy/Garnishment against the petitioners was
allegedly made prior to the expiration of the period allowed for the
petitioners to pay the assessed deficiency taxes;
d. The Warrant of Distraint and/or Levy/Garnishment against petitioners failed to
take into consideration that the deficiency VAT was already paid in full; and
e. Petitioners were not given a copy of the Warrants. Sections 20768 and
20869 of the Tax Code require the Warrant of Distraint and/or Levy/Garnishment be
served upon the taxpayer.
Additional Factors
In case the CTA finds that the petitioners should provide the necessary security
under Section 11 of R.A. 1125, a recomputation of the amount thereof is in order.-
If there would be a need for a bond or to reduce the same, the CTA should take
note that the Court, in A.M. No. 15-92-01-CTA, resolved to approve the CTA En
Banc Resolution No. 02-2015, where the phrase "amount claimed" stated in Section
11 of R.A. No. 1125 was construed to refer to the principal amount of the
deficiency taxes, excluding penalties, interests and surcharges.
Moreover, the CTA should.also consider the claim of the petitioners that they
already paid a total of P32,196,534.40 deficiency VAT assessed against' them..
Despite said payment, the CIR still assessed them the total amount of
P3,298,514,894.35, including the amount assessed as VAT deficiency, plus
surcharges, penalties and interest. If so, these should also be deducted from
the.amount of the bond to be computed and required.

In the conduct of its preliminary hearing, the CTA must balance the scale between
the inherent power of the State to tax and its right to prosecute perceived
transgressors of the law, on one side; and the constitutional rights of petitioners to
due process of law and the equal protection of the laws, on the other. In case of
doubt, the tax court must remember that as in all tax cases, such scale should favor
the taxpayer, for a citizen's right to due process and equal protection of the law is
amply protected by the Bill of Rights under the Constitution.70

In view of all the foregoing, the April 22, 2014 and July 11, 2014 Resolutions of the
CTA, in so far as it required the petitioners to deposit first a cash bond in the
amount of P3,298,514,894.35 or post a bond of P4,947,772,341.53, should be
further enjoined until the issues aforementioned are settled in a preliminary hearing
to be conducted by it. Thereafter, it should make a determination if the posting of a
bond would still be required and, if so, compute it taking into account the CTA En
Banc Resolution, which was approved by the Court in A.M. No. 15-02-01-CTA, and
the claimed payment of P32,196,534.40, among others. chanrob leslaw

WHEREFORE, the petition is PARTIALLY GRANTED. Let a Writ of Preliminary

Injunction be issued, enjoining the implementation of the April 22, 2014 and July
11, 2014 Resolutions of the Court of Tax Appeals, First Division, in CTA Case No.
8683, requiring the petitioners to first deposit a cash bond in the amount of
P3,298,514,894.35 or post a bond of P4,947,772,341.53, as a condition to restrain
the collection of the deficiency taxes assessed against them.

The writ shall remain in effect until the issues aforementioned are settled in a
preliminary hearing to be conducted by the Court of Tax Appeals, First Division.

Accordingly, the case is hereby REMANDED to the Court of Tax Appeals, First
Division, which is ordered to conduct a preliminary hearing to determine whether
the dispensation or reduction of the required cash deposit or bond provided under
Section 11, Republic Act No. 1125 is proper to restrain the collection of deficiency
taxes assessed against the petitioners.

If required, the Court of Tax Appeals, First Division, shall proceed to compute the
amount of the bond in accordance with the guidelines aforestated, particularly the
provisions of A.M. No. 15-02-01-CTA. It should also take into account the amounts
already paid by the petitioners.

After the posting of the required bond, or if the Court of Tax Appeals, First Division,
determines that no bond is necessary, it shall proceed to hear and resolve the
petition for review pending before it.

SO ORDERED.

Carpio, (Chairperson), Brion, Reyes,* and Leonen, JJ., concur

 FIRST DIVISION
G.R. No. 207843 July 15, 2015
COMMISSION OF INTERNAL REVENUE, Petitioner,
vs.
COURT OF TAX APPEALS (SECOND DIVISION) and PETRON
CORPORATION,* Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for certiorari1 are the Resolutions dated February 13,
20132 and May 8, 20133 of the Court of Tax Appeals, Second Division (CTA) in
CTA Case No. 8544 reversing and setting aside the earlier dismissal of the
petition for review filed by private respondent Petron Corporation (Petron) in the
said case on the bases of prematurity and lack of jurisdiction.
The Facts
Petron, which is engaged in the manufacture and marketing of petroleum
products, imports alkylate as a raw material or blending component for the
manufacture of ethanol-blended motor gasoline.4 For the period January 2009 to
August 2011, as well as for the month of April 2012, Petron transacted an
aggregate of 22 separate importations for which petitioner the Commissioner of
Internal Revenue (CIR) issued Authorities to Release Imported Goods (ATRIGs),
categorically stating that Petron's importation of alkylate is exempt from the
payment of the excise tax because it was not among those articles enumerated
as subject to excise tax under Title VI of Republic Act No. (RA) 8424,5 as
amended, or the 1997 National Internal Revenue Code (NIRC). With respect,
however, to Petron's alkylate importations covering the period September 2011
to June 2012 (excluding April 2012), the CIR inserted, without prior notice, a
reservation for all ATRIGs issued,6 stating that:
This is without prejudice to the collection of the corresponding excise taxes,
penalties and interest depending on the final resolution of the Office of the
Commissioner on the issue of whether this item is subject to the excise taxes
under the National Internal Revenue Code of 1997, as amended.7
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added
tax (VAT) in the total amount of ?41,657,533.00 as evidenced by Import Entry
and Internal Revenue Declaration (IEIRD) No. SN 122406532. Based on the
Final Computation, said importation was subjected by the Collector of Customs
of Port Limay, Bataan, upon instructions of the Commissioner of Customs (COC),
to excise taxes of ₱4.35 per liter, or in the aggregate amount of ₱55,691,571.00,
and consequently, to an additional VAT of 12% on the imposed excise tax in the
amount of ₱6,682,989.00.8 The imposition of the excise tax was supposedly
premised on Customs Memorandum Circular (CMC) No. 164-2012 dated July 18,
2012, implementing the Letter dated June 29, 2012 issued by the CIR, which
states that:
[A]lkylate which is a product of distillation similar to that of naphta, is subject to
excise tax under Section 148( e) of the National Internal Revenue Code (NIRC)
of 1997. 9
In view of the CIR's assessment, Petron filed before the CTA a petition for
review,10 docketed as CTA Case No. 8544, raising the issue of whether its
importation of alkylate as a blending component is subject to excise tax as
contemplated under Section 148 (e) of the NIRC.
On October 5, 2012, the CIR filed a motion to dismiss on the grounds of lack of
jurisdiction and prematurity.11
Initially, in a Resolution12 dated November 15, 2012, the CTA granted the CIR's
motion and dismissed the case. However, on Petron's motion for
reconsideration,13 it reversed its earlier disposition in a Resolution14 dated
February 13, 2013, and eventually denied the CIR's motion for
reconsideration15 therefrom in a Resolution16 dated May 8, 2013. In effect, the
CTA gave due course to Petron's petition, finding that: (a) the controversy was
not essentially for the determination of the constitutionality, legality or validity of a
law, rule or regulation but a question on the propriety or soundness of the CIR's
interpretation of Section 148 (e) of the NIRC which falls within the exclusive
jurisdiction of the CTA under Section 4 thereof, particularly under the phrase
"other matters arising under [the NIRC]";17 and (b) there are attending
circumstances that exempt the case from the rule on non-exhaustion of
administrative remedies, such as the great irreparable damage that may be
suffered by Petron from the CIR's final assessment of excise tax on its
importation.18
Aggrieved, the CIR sought immediate recourse to the Court, through the instant
petition, alleging that the CTA committed grave abuse of discretion when it
assumed authority to take cognizance of the case despite its lack of jurisdiction
to do so.19
The Issue Before the Court
The core issue to be resolved is whether or not the CTA properly assumed
jurisdiction over the petition assailing the imposition of excise tax on Petron's
importation of alkylate based on Section 148 (e) of the NIRC.
The Court's Ruling
The petition is meritorious.
provided:
The CIR asserts that the interpretation of the subject tax provision, i.e., Section
148 (e) of the NIRC, embodied in CMC No. 164-2012, is an exercise of her
quasi-legislative function which is reviewable by the Secretary of Finance, whose
decision, in turn, is appealable to the Office of
the President and, ultimately, to the regular courts, and that only her quasi-
judicial functions or the authority to decide disputed assessments, refunds,
penalties and the like are subject to the exclusive appellate jurisdiction of the
CTA.20 She likewise contends that the petition suffers from prematurity due to
Petron 's failure to exhaust all available remedies within the administrative level
in accordance with the Tariff and Customs Code (TCC). 21
The CIR's position is well-grounded.
Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax
laws in the exercise of her quasi-legislative function; and (b) the power to decide
tax cases in the exercise of her quasi-judicial function. It also delineates the
jurisdictional authority to review the validity of the CIR's exercise of the said
powers, thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. - The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner, subject
to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters
arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the Commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals. (Emphases and
underscoring supplied)
The CTA is a court of special jurisdiction, with power to review by appeal
decisions involving tax disputes rendered by either the CIR or the
COC. Conversely, it has no jurisdiction to determine the validity of a ruling
1âw phi 1
issued by the CIR or the COC in the exercise of their quasi-legislative powers to
interpret tax laws. These observations may be deduced from a reading of Section
7 of RA 1125,22 as amended by RA 9282,23 entitled "An Act Creating the Court of
Tax Appeals," enumerating the cases over which the CT A may exercise its
jurisdiction:
Sec. 7. Jurisdiction. -The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
1. Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relations thereto, or
other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code provides a specific
period of action, in which case the inaction shall be deemed a
denial;
3. Decisions, orders or resolutions of the Regional Trial Comis
in local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving
liability for customs duties, fees or other money charges,
seizure, detention or release of property affected, fines,
forfeitures or other penalties in relation thereto, or other matters
arising under the Customs Law or other laws administered by
the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the
exercise of its appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by
the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the
Government under Section 2315 of the Tariff and Customs
Code;
7. Decisions of the Secretary of Trade and Industry, in the case
of nonagricultural product, commodity or article, and the
Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act
 No. 8800, where either party may appeal the decision to impose
or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising
from violations of the National Internal Revenue Code or Tariff
and Customs Code and other laws administered by the Bureau
of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph
where the principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than One million pesos
(₱1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular Courts and the jurisdiction of the
CTA shall be appellate. Any provision of law or the Rules of
Court to the contrary notwithstanding, the criminal action and
the corresponding civil action for the recovery of civil liability for
taxes and penalties shall at all times be simultaneously
instituted with, and jointly determined in the same proceeding by
the CT A, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right
to reserve the filling of such civil action separately from the
criminal action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax cases
originally decided by them, in their respective territorial
jurisdiction.
b. Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax cases
originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial
Courts in their respective jurisdiction.
c. Jurisdiction over tax collection cases as herein
provided:
1. Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided,
however, That collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One
million pesos (₱1,000,000.00) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax collection cases originally decided
by them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax collection cases originally decided
by the Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts, in their respective jurisdiction.
(Emphasis supplied)
In this case, Petron's tax liability was premised on the COC's issuance of CMC
No. 164-2012, which gave effect to the CIR's June 29, 2012 Letter interpreting
Section 148 (e) of the NIRC as to include alkyl ate among the articles subject to
customs duties, hence, Petron's petition before the CTA ultimately challenging
the legality and constitutionality of the CIR's aforesaid interpretation of a tax
provision. In line with the foregoing discussion, however, the CIR correctly
argues that the CT A had no jurisdiction to take cognizance of the petition as its
resolution would necessarily involve a declaration of the validity or
constitutionality of the CIR's interpretation of Section 148 (e) of the NIRC, which
is subject to the exclusive review by the Secretary of Finance and ultimately by
the regular courts. In British American Tobacco v. Camacho,24 the Court ruled
that the CTA's jurisdiction to resolve tax disputes excludes the power to rule on
the constitutionality or validity of a law, rule or regulation, to wit:
While the above statute confers on the CTA jurisdiction to resolve tax disputes in
general, this does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a law, or a
rule or regulation issued by the administrative agency in the performance of its
quasi-legislative function, the regular courts have jurisdiction to pass upon the
same. x x x.25
In asserting its jurisdiction over the present case, the CTA explained that Petron's
petition filed before it "simply puts in question" the propriety or soundness of the
CIR's interpretation and application of Section 148 (e) of the NIRC (as embodied
in CMC No. 164-2012) "in relation to" the imposition of excise tax on Petron's
importation of alkylate; thus, the CTA posits that the case should be regarded as
"other matters arising under [the NIRC]" under the second paragraph of Section
4 of the NIRC, therefore falling within the CTA's jurisdiction:26
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax
Cases. - The power to interpret the provisions of this Code and other tax laws
shall be under the exclusive and original jurisdiction of the Commissioner, subject
to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other matters
arising under this Code or other laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the commissioner, subject to the
exclusive appellate jurisdiction of the Court of Tax Appeals. (Emphases and
underscoring supplied)
The Court disagrees.
As the CIR aptly pointed out, the phrase "other matters arising under this Code,"
as stated in the second paragraph of Section 4 of the NIRC, should be
understood as pertaining to those matters directly related to the preceding
phrase "disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto" and must therefore not be taken
in isolation to invoke the jurisdiction of the CTA.27 In other words, the subject
phrase should be used only in reference to cases that are, to begin with, subject
to the exclusive appellate jurisdiction of the CTA, i.e., those controversies over
which the CIR had exercised her quasi-judicial functions or her power to decide
disputed assessments, refunds or internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, not to those that involved the CIR's
exercise of quasi-legislative powers.
In Enrile v. Court of Appeals,28 the Court, applying the statutory construction
principle of ejusdem generis,29explained the import of using the general clause
"other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs" in the enumeration of cases subject to
the exclusive appellate jurisdiction of the CTA, saying that: [T]he 'other matters'
that may come under the general clause should be of the same nature as those
that have preceded them applying the rule of construction known as ejusdem
generis.30(Emphasis and underscoring supplied)
Hence, as the CIR's interpretation of a tax provision involves an exercise of her
quasi-legislative functions, the proper recourse against the subject tax ruling
expressed in CMC No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts. In Commissioner of Customs v. Hypermix Feeds
Corporation,31 the Court has held that:
The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
jurisdiction of the regular courts. Indeed, the Constitution vests the power of
judicial review or the power to declare a law, treaty, international or executive
agreement, presidential decree, order, instruction, ordinance, or regulation in the
courts, including the regional trial courts. This is within the scope of judicial
power, which includes the authority of the courts to determine in an appropriate
action the validity of the acts of the political departments. x x x.32
Besides, Petron prematurely invoked the jurisdiction of the CT A. Under Section
7 of RA 1125, as amended by RA 9282, what is appealable to the CT A is the
decision of the COC over a customs collector's adverse ruling on a taxpayer's
protest:
SEC. 7. Jurisdiction. -The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of Internal Revenue;
xxxx
4. Decisions of the Commissioner of Customs in cases involving liability for
customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures or other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
xxxx
Section 11 of the same law is no less categorical in stating that what may be the
subject of an appeal to the CT A is a decision, ruling or inaction of the CIR or the
COC, among others:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. – Any party
adversely affected by a decision, ruling or inaction of the Commissioner of
Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an appeal
with the CTA within thirty (30) days after the receipt of such decision or ruling or
after the expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein.
xxxx
In this case, there was even no tax assessment to speak of. While customs
collector Federico Bulanhagui himself admitted during the CTA's November 8,
2012 hearing that the computation he had written at the back page of the IEIRD
served as the final assessment imposing excise tax on Petron's importation of
alkylate,33 the Court concurs with the CIR's stance that the subject IEIRD was not
yet the customs collector's final assessment that could be the proper subject of
review. And even if it were, the same should have been brought first for review
before the COC and not directly to the CTA. It should be stressed that the CTA MARIA LOURDES P.A. SERENO
has no jurisdiction to review by appeal, decisions of the customs collector.34 The Chief Justice
TCC prescribes that a party adversely affected by a ruling or decision of the Chairperson
customs collector may protest such ruling or decision upon payment of the
amount due35 and, if aggrieved by the action of the customs collector on the
TERESITA J. LEONARDO-DE
matter under protest, may have the same reviewed by the COC.36 It is only after LUCAS P. BERSAMIN
CASTRO
the COC shall have made an adverse ruling on the matter may the aggrieved Associate Justice
Associate Justice
party file an

appeal to the CT A.37 JOSE PORTUGAL PEREZ

Associate Justice
Notably, Petron admitted to not having filed a protest of the assessment before
the customs collector and elevating a possible adverse ruling therein to the COC, CERTIFICATION
reasoning that such a procedure would be costly and impractical, and would
unjustly delay the resolution of the issues which, being purely legal in nature Pursuant to Section 13, Article VIII of the Constitution, I certify that the
anyway, were also beyond the authority of the customs collector to resolve with conclusions in the above Decision had been reached in consultation before the
finality.38 This admission is at once decisive of the issue of the CTA's jurisdiction case was assigned to the writer of the opinion of the Court's Division.
over the petition. There being no protest ruling by the customs collector that was
appealed to the COC, the filing of the petition before the CTA was premature as MARIA LOURDES P.A. SERENO
there was nothing yet to review.39 Chief Justice

Verily, the fact that there is no decision by the COC to appeal from highlights
Petron's failure to exhaust administrative remedies prescribed by law. Before a
party is allowed to seek the intervention of the courts, it is a pre-condition that he
avail of all administrative processes afforded him, such that if a remedy within the
administrative machinery can be resorted to by giving the administrative officer
every opportunity to decide on a matter that comes within his jurisdiction, then
such remedy must be exhausted first before the court's power of judicial review
can be sought, otherwise, the premature resort to the court is fatal to one's cause
of action.40 While there are exceptions to the principle of exhaustion of
administrative remedies, it has not been sufficiently shown that the present case
falls under any of the exceptions.

WHEREFORE, the petition is GRANTED. The Resolutions dated February 13,

2013 and May 8, 2013 of the Court of Tax Appeals (CTA), Second Division in
CTA Case No. 8544 are hereby REVERSED and SET ASIDE. The petition for
review filed by private respondent Petron Corporation before the CTA is
DISMISSED for lack of jurisdiction and prematurity.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:
 EN BANC
June 21, 2016
G.R. No. 199422
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
KEPCO ILIJAN CORPORATION, Respondent.
DECISION
PERALTA, J.:
This is a petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the reversal of the Resolutions1 dated July 27, 20112 and November 15,
20113 of the Court of Tax Appeals (CTA) En Banc.
The facts follow.
For the first4 and second5 quarters of the calendar year 2000, respondent filed its
Quarterly value-added tax (VAT) returns with the Bureau of Internal
Revenue (BIR). It also filed the Application for Zero Rated Sales for calendar
year 2000 which was duly approved by the BIR.6
Thereafter, respondent filed with the BIR its claim for refund in the amount of
₱49,569,448.73 representing input tax incurred for the first and second quarters
of the calendar year 2000 from its importation and domestic purchases of capital
goods and services preparatory to its production and sales of electricity to the
National Power Corporation.7
Petitioner did not act upon respondent's claim for refund or issuance of tax credit
certificate for the first and second quarters of the calendar year 2000.
Consequently, respondent filed a Petition for Review8 on March 21, 2002, and an
Amended Petition for Review9 on September 12, 2003.
In her Answer, 10 petitioner alleged the following Special and Affirmative
Defenses: (1) respondent is not entitled to the refund of the amounts prayed for;
(2) the petition was prematurely filed for respondent's failure to exhaust
administrative remedies; (3) respondent failed to show that the taxes paid were
erroneously or illegally collected; and (4) respondent has no cause of action.
After the issues were joined, trial on the merits ensued.
Respondent, thereafter, filed its Memorand.um on September 1, 2008. For failure
of petitioner to file the required Memorandum despite notice, the CTA First
Division issued a Resolution11 dated September 12, 2008 submitting the case for
decision.
On September 11, 2009, the CTA First Division rendered a Decision, 12
the
dispositive portion 13 of which reads as follows:
IN VIEW OF THE FOREGOING, THIS Court finds petitioner entitled to a
refund in the amount of ₱443,447,184.50, representing unutilized input
VAT paid on its domestic purchases and importation of capital goods for
the first and second quarters of 2000, as computed below:
Amount of Input VAT Claim ₱449,569,448.73
Less: Input VAT Pertaining to Non-Capital Goods 706,328.22
Input VAT Claim Pertaining to Capital Goods Purchases ₱448,863,120.51
Less: Not Properly Substantiated Input VAT
Per ICPA’s Findings 45,878.55
Per this Court’s Further Verfication 5,370,057.46
Refundable Input VAT on Capital Goods Purchases ₱443,447,184.50
There being no motion for reconsideration filed by the petitioner, the
abovementioned decision became final and executory and a corresponding Entry
of Judgment was issued on October 10, 2009. Thus, on February 16, 2010, the
Court issued a Writ of Execution, 14 the pertinent portion of which reads as
follows:
You are hereby ORDERED to REFUND in favor of the petitioner KEPCO
ILIJAN CORPORATION, the amount of ₱443,447,184.50 representing
unutilized input VAT paid on its domestic purchases and importation of
capital goods for the first and second quarters of 2000, pursuant to the
Decision of this Court, promulgated on September 11, 2009, which has
become final and executory on October 10, 2009, by virtue of the Entry
of Judgment issued on said date.
The Sheriff of this Court is hereby directed to see to it that this Writ is
carried out by the Respondent and/or his agents, and shall make the
corresponding return/report thereon within thirty (30) days after receipt of
the Writ.
SO ORDERED.
Petitioner alleges that she learned only of the Decision and the subsequent
issuance of the writ of March 7, 2011 when the Office of the Deputy
Commissioner for Legal and Inspection Group received a Memorandum from the
Appellate Division of the National Office recommending the issuance of a Tax
Credit Certificate in favor of the respondent in the amount of ₱443,447,184.50.
Accordingly, on April 11, 2011 petitioner filed a petition for annulment of
judgment with the CTA En Banc, praying for the following reliefs: (1) that the
Decision dated September 11, 2009 of the CTA First Division in CTA Case No.
6412 be annulled and set aside; (2) that the Entry of Judgment on October 10,
2009 and Writ of Execution on February 16, 2010 be nullified; and (3) that the
CTA First Division be directed to re-open CTA Case No. 6412 to allow petitioner
to submit her memoranda setting forth her substantial legal defenses.
In opposition, respondent filed its Motion to Deny Due Course (To The Petition
for Annulment of Judgment), arguing, among others, that petitioner is not lawfully
entitled to the annulment of judgment on the ground that the CTA En Banc is
bereft of jurisdiction to entertain annulment of judgments on the premise that the
Rules of Court, Republic Act No. (RA No.) 9282, 15 and the Revised Rules of the
Court of Tax Appeals do not expressly provide a remedy on annulment of
judgments.
On July 27, 2011, the CTA En Banc issued a Resolution16 dismissing the petition.
Petitioner filed a motion for reconsideration, but the same was denied in a
Resolution17 dated November 15, 2011.
Hence, this petition.
Petitioner raises the following arguments to support her petition:
I decision of the municipal or metropolitan trial court.
THE COURT OF TAX APPEALS (EN BANC) HAS JURISDICTION TO
TAKE COGNIZANCE OF THE PETITION FOR ANNULMENT OF
JUDGMENT.
II
THE NEGLIGENCE COMMITTED BY PETITIONER'S COUNSEL IS
GROSS, PALPABLE AND CONSTITUTES TOTAL ABANDONMENT
QF PETITIONER'S CAUSE WHICH IS TANTAMOUNT TO EXTRINSIC
FRAUD.
III
THE COURT OF TAX APPEALS (FIRST DIVISION) HAS NO
JURISDICTION OVER THE ORIGINAL PETITION FILED BY
RESPONDENT.
IV
PETITIONER IS NOT BARRED BY LA CHES FROM ASSAILING THE
JURISDICTION OF THE COURT OF TAX APPEALS (FIRST
DIVISION) OVER THE PETITION FILED BY RESPONDENT.18
Prefatorily, we first pass upon the issue of whether the CTA En Banc has
jurisdiction to take cognizance of the petition for annulment of judgment filed by
petitioner.
Annulment of judgment, as provided for in Rule 47 of the Rules of Court, is based
only on the grounds of extrinsic fraud and lack of jurisdiction. It is a recourse that
presupposes the filing of a separate and original action for the purpose of
annulling or avoiding a decision in another case. Annulment is a remedy in law
independent of the case where the judgment sought to be annulled is
rendered. 19 It is unlike a motion for reconsideration, appeal or even a petition for
relief from judgment, because annulment is not a continuation or progression of
the same case, as in fact the case it seeks to annul is already final and
executory. Rather, it is an extraordinary remedy that is equitable in character and
is permitted only in exceptional cases.20
Annulment of judgment involves the exercise of original jurisdiction, as expressly
conferred on the Court of Appeals by Batas Pambansa Bilang (BP Blg.) 129,
Section 9(2). It also implies power by a superior court over a subordinate one, as
provided for in Rule 47 of the Rules of Court, wherein the appellate court may
annul a decision of the regional trial court, or the latter court may annul a
But the law and the rules are silent when it comes to a situation similar to the
case at bar, in which a court, in this case the Court of Tax Appeals, is called
upon to annul its own judgment. More specifically, in the case at bar, the CTA
sitting en bane is being asked to annul a decision of one of its divisions.
However, the laws creating the CTA and expanding its jurisdiction (RA Nos. 1125
and 9282) and the court's own rules of procedure (the Revised Rules of the CTA)
do not provide for such a scenario.
It is the same situation among other collegial courts. To illustrate, the Supreme
Court or the Court of Appeals may sit and adjudicate cases in divisions
consisting of only a number of members, and such adjudication is already
regarded .as the decision of the Court itself. 21 It is provided for in the
Constitution, Article VIII, Section 4(1) and BP Blg. 129, Section 4, respectively.
The divisions are not considered separate and distinct courts but are divisions of
one and the same court; there is no hierarchy of courts within the Supreme Court
and the Court of Appeals, for they each remain as one court notwithstanding that
they also work in divisions.22 The Supreme Court sitting en banc is not an
appellate court vis-a-vis its divisions, and it exercises no appellate jurisdiction
over the latter.23 As for the Court of
Appeals en banc, it sits as such only for the purpose of exercising administrative,
ceremonial, or other non-adjudicatory functions. 24
Thus, it appears contrary to these features that a collegial court, sitting en
banc, may be called upon to annul a decision of one of its divisions which had
become final and executory, for it is tantamount to allowing a court to annul its
own judgment and acknowledging that a hierarchy exists within such court. In the
process, it also betrays the principle that judgments must, at some point, attain
finality. A court that can revisit its own final judgments leaves the door open to
possible endless reversals or modifications which is anathema to a stable legal
system.
Thus, the Revised Rules of the CTA and even the Rules of Court which apply
suppletorily thereto provide for no instance in which the en banc may reverse,
annul or void a final decision of a division. Verily, the Revised Rules of the CTA
provide for no instance of an annulment of judgment at all. On the other hand,
the Rules of Court, through Rule 47, provides, with certain conditions, for
annulment of judgment done by a superior court, like the Court of Appeals,
against the final judgment, decision or ruling of an inferior court, which is the
Regional Trial Court, based on the grounds of extrinsic' fraud and lack of
.jurisdiction. The Regional Trial Court, in turn, also is empowered to, upon a
similar action, annul a judgment or ruling of the Metropolitan or Municipal Trial
Courts within its territorial jurisdiction. But, again, the said Rules are silent as to
whether a collegial court sitting en banc may annul a final judgment of its own
division.
As earlier explained, the silence of the Rules may be attributed to the need to
preserve the principles that there can be no hierarchy within a collegial court
between its divisions and the en banc, and that a court's judgment, once final, is
immutable.
A direct petition for annulment of a judgment of the CTA to the Supreme Court,
meanwhile, is likewise unavailing, for the same reason that there is no identical
remedy with the High Court to annul a final and executory judgment of the Court
of Appeals. RA No. 9282, Section l puts the CTA on the same level as the Court
of Appeals, so that if the latter's final judgments may not be annulled before the
Supreme Court, then the CTA's own decisions similarly may not be so annulled.
And more importantly, it has been previously discussed that am1ulment of
judgment is an original action, yet, it is not among the cases enumerated in the
Constitution's Article VIII, Section 5 over which the Supreme Court exercises
original jurisdiction. Annulment of judgment also often requires an adjudication of
facts, a task that the Court loathes to perform, as it is not a trier of facts. 25
Nevertheless, there will be extraordinary cases, when the interest of justice
highly demands it, where final judgments of the Court of Appeals, the CTA or any
other inferior court may still be vacated or subjected to the Supreme Court's
modification, reversal, annulment or declaration as void. But it will be
accomplished not through the same species of original action or petition for
annulment as that found in Rule 47 of the Rules of Court, but through any of the
actions over which the Supreme Court has original jurisdiction as specified in the
Constitution, like 65 of the Rules of Court.
Hence, the next query is: Did the CTA En Banc correctly deny the petition for
annulment of judgment filed by petitioner?
As earlier discussed, the petition designated as one for annulment of judgment
(following Rule 47) was legally and procedurally infirm and, thus, was soundly
dismissed by the CTA En Banc on such ground. Also, the CTA could not have
treated the petition as an appeal or a continuation of the case before the CTA
First Division because the latter's decision had become final and executory and,
thus, no longer subject to an appeal.
Instead, what remained as a remedy for the petitioner was to file a petition
for certiorari under Rule 65, which could have been filed as an original action
before this Court and not before the CTA En Banc. Certiorari is available when
there is no appeal or any other plain, speedy and adequate remedy in the
ordinary course of law, such as in the case at bar. Since the petition below
invoked the gross and palpable negligence of petitioner's counsel which is
allegedly tantamount to its being deprived of due process and its day in court as
party-litigant26 and, as it also invokes lack of jurisdiction of the CTA First Division
to entertain the petition filed by private respondent since the same allegedly fails
to comply with the
reglementary periods for judicial remedies involving administrative claims for
refund of excess unutilized input VAT under the National Internal Revenue
Code (NJRC),27which periods it claims to be jurisdictional, then the proper remedy
that petitioner should have availed of was indeed a petition for certiorari under
Rule 65, an original or independent action premised on the public respondent
having acted without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction. However, since a certiorari petition is
not a continuation of the appellate process borne out of the original case but is a
separate action focused on actions that are in excess or wanting of
jurisdiction,28 then it cannot be filed in the same tribunal whose actions are being
assailed but is instead cognizable by a higher tribunal which, in the case of the
CTA, is this Court.29 In the case involving petitioner, the petition could have been
filed directly with this Court, even without any need to file a motion for
reconsideration with the CTA division or En Banc, as the case appears to fall
under one of the recognized exceptions to the rule requiring such a motion as a
prerequisite to filing such petition.30
The office of a certiorari petition is detailed in the Rules of Court, thus:
 Section 1. Petition for certiorari. - When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal, or
any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all pleadings and
documents relevant and pertinent thereto, and a sworn certification of
non-forum shopping as provided in the third paragraph of section 3, Rule
46. (la)
The writ of certiorari is an "extraordinary remedy" that is justified in the "absence
of an appeal or any plain speedy and adequate remedy in the ordinary course
oflaw."31 It may be given due course as long as petitioners allege that they had no
appeal or any other efficacious remedy against the appellate court's decision.32
Direct resort to this Court via a certiorari petition on the same grounds as in this
case has jurisprudential precedents. In one, We held that when the appellate
1âw phi 1
court's decision is void for lack of due process, the filing of a petition
for certiorari with this court without a motion for reconsideration is justified. 33 This
Court also has held that a petition for certiorari under Rule 65 of the Rules of
Court is available when the proceedings in question amount to depriving the
petitioner his day in court.34 It is true that certiorari is not a substitute for appeal,
but exempt from this rule is a case when the trial court's decision or resolution
was issued without jurisdiction or with gr.ave abuse of discretion. 35 When a
fraudulent scheme prevents a party from having his day in court or from
presenting his case, the fraud is one that affects and goes into the
jurisdiction of the court. 36 A question as to lack of jurisdiction of the respondent
tribunal or agency is properly the office of a petition for certiorari.
In any event, petitioner's failure to avail of this remedy and mistaken filing of the
wrong action are fatal to its case and renders and leaves the CTA First Division's
decision as indeed final and executory. By the time the instant petition for review
was filed by petitioner with this Court on December 9, 2011, more than sixty (60)
days have passed since petitioner's alleged discovery (on March 7, 2011) of its
loss in the case as brought about by the alleged negligence or fraud of its
counsel.
Thus, the current discussion serves no further purpose other than as merely a
future guide to the bench and the bar when confronted with a similar situation.
Although in select cases, this Court has asseverated that "it is always within its
power to suspend its own rules or to except a particular case from its operation,
whenever the purposes of justice require it" and that the Rules of Court were
conceived and promulgated to set forth 'guidelines in the dispensation of justice
but not to bind and chain the hand that dispenses it, for otherwise, courts will be
mere slaves to or robots of technical rules, shorn of judicial discretion. 37 We have
also equally stressed that strict compliance with the rules of procedure is
essential to the administration of justice. 38
In this case, even if there was allegedly a deliberate effort from petitioner's
counsel to refuse to participate, despite notice, in the conduct of the case after
the filing of the Answer right up to the issuance of the Writ of Execution against
petitioner, 38 equally apparent is the failure of petitioner and/or petitioner's
responsible subordinates to supervise the said counsel as well as the conduct
and progress of the case. Not only was there an apparent negligence of
counsel, 39 which binds the client, there likewise appears to have been lapses on
the part of the client - the petitioner and the petitioner's responsible subordinates
- themselves. Equally oft-repeated is the rule that service made upon the present
counsel of record at his given address is service to the client.40 Thus, it is harder
to justify a relaxation of the rules when the litigant itself suffers from inexcusable
neglect. It is an oft-repeated pronouncement that clients should take the initiative
of periodically checking the progress of their cases, so that they could take timely
steps to protect their interest.41 Failing such, clients are left with more recourse
against the consequence of their and their counsel's omissions.
To prevent similar disadvantageous incidents against the government in the
future, the BIR is DIRECTED to ADOPT mechanisms, procedures, or measures
that can effectively monitor the progress of cases being handled by its counsels.
Likewise, the Ombudsman is DIRECTED to CONDUCT an in-depth investigation
to determine who were responsible for the apparent mishandling of the present
case that resulted in the loss of almost half-a-billion pesos, which the government
could have used to finance its much needed infrastructure, livelihood projects,
and other equally important projects.
WHEREFORE, premises considered, the petition for review is
hereby DENIED. The assailed Resolutions dated July 27, 2011 and November
15, 2011 of the Court of Tax Appeals En Banc are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
MARIA LOURDES P.A. SERENO
Chief Justice
 ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.
Associate Justice Associate Justice

TERESITA J. LEONARDO-DE
ARTURO D. BRION
CASTRO
Associate Justice
Associate Justice

On official leave
LUCAS P. BERSAMIN
MARIANO C. DEL CASTILLO*
Associate Justice
Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

No part
MARVIC M.V.F. LEONEN
FRANCIS H. JARDELEZA*
Associate Justice
Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice
 EN BANC
G.R. No. 175723 February 4, 2014
THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and
MS. LIBERTY M. TOLEDO, in her capacity as the City Treasurer of
Manila, Petitioners,
vs.
HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of
the Regional Trial Court, Branch 112, Pasay City; SM MART, INC.; SM
PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE,
INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE
STORES, PHILS., INC.; JOLLIMART PHILS., CORP.; SURPLUS MARKETING
CORPORATION and SIGNATURE LINES, Respondents.
DECISION
PERALTA, J.:
Before the Court is a special civil action for certiorari under Rule 65 of the Rules
of Court seeking to reverse and set aside the Resolutions1 dated April 6, 2006
and November 29, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 87948.
The antecedents of the case, as summarized by the CA, are as follows:
The record shows that petitioner City of Manila, through its treasurer, petitioner
Liberty Toledo, assessed taxes for the taxable period from January to December
2002 against private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
Appliances Center, Supervalue, Inc., Ace Hardware Philippines, Inc., Watsons
Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing
Corp. and Signature Lines. In addition to the taxes purportedly due from private
respondents pursuant to Section 14, 15, 16, 17 of the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners
were authorized to collect under Section 21 of the same Code. Because payment
of the taxes assessed was a precondition for the issuance of their business
permits, private respondents were constrained to pay the ₱19,316,458.77
assessment under protest.
On January 24, 2004, private respondents filed [with the Regional Trial Court of
Pasay City] the complaint denominated as one for "Refund or Recovery of
Illegally and/or Erroneously-Collected Local Business Tax, Prohibition with
Prayer to Issue TRO and Writ of Preliminary Injunction"
which was docketed as Civil Case No. 04-0019-CFM before public respondent's
sala [at Branch 112]. In the amended complaint they filed on February 16, 2004,
private respondents alleged that, in relation to Section 21 thereof, Sections 14,
15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations and
guidelines under Section 143 (h) of Republic Act. No. 7160 [Local Government
Code] on double taxation. They further averred that petitioner city's Ordinance
No. 8011 which amended pertinent portions of the RRCM had already been
declared to be illegal and unconstitutional by the Department of Justice.2
In its Order3 dated July 9, 2004, the RTC granted private respondents' application
for a writ of preliminary injunction.
Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its
Order5 dated October 15, 2004.
Petitioners then filed a special civil action for certiorari with the CA assailing the
July 9, 2004 and October 15, 2004 Orders of the RTC.6
In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners'
petition for certiorari holding that it has no jurisdiction over the said petition. The
CA ruled that since appellate jurisdiction over private respondents' complaint for
tax refund, which was filed with the RTC, is vested in the Court of Tax Appeals
(CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA
9282), it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the CTA.
Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its
Resolution dated November 29, 2006.
Hence, the present petition raising the following issues:
I- Whether or not the Honorable Court of Appeals gravely erred in
dismissing the case for lack of jurisdiction.
II- Whether or not the Honorable Regional Trial Court gravely abuse[d]
its discretion amounting to lack or excess of jurisdiction in enjoining by
issuing a Writ of Injunction the petitioners, their agents and/or authorized
representatives from implementing Section 21 of the Revised Revenue
Code of Manila, as amended, against private respondents.
III- Whether or not the Honorable Regional Trial Court gravely abuse[d]
its discretion amounting to lack or excess of jurisdiction in issuing the
Writ of Injunction despite failure of private respondents to make a written
claim for tax credit or refund with the City Treasurer of Manila.
IV- Whether or not the Honorable Regional Trial Court gravely abuse[d]
its discretion amounting to lack or excess of jurisdiction considering that
under Section 21 of the Manila Revenue Code, as amended, they are
mere collecting agents of the City Government.
 V- Whether or not the Honorable Regional Trial Court gravely abuse[d]
its discretion amounting to lack or excess of jurisdiction in issuing the
Writ of Injunction because petitioner City of Manila and its constituents
would result to greater damage and prejudice thereof. (sic)8
Without first resolving the above issues, this Court finds that the instant petition
should be denied for being moot and academic.
Upon perusal of the original records of the instant case, this Court discovered
that a Decision9 in the main case had already been rendered by the RTC on
August 13, 2007, the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT
in favor of the plaintiff and against the defendant to grant a tax refund or credit for
taxes paid pursuant to Section 21 of the Revenue Code of the City of Manila as
amended for the year 2002 in the following amounts:
foregoing, it clearly appears that the issues raised in the present petition, which
merely involve the incident on the preliminary injunction issued by the RTC, have
already become moot and academic considering that the trial court, in its
decision on the merits in the main case, has already ruled in favor of respondents
and that the same decision is now final and executory. Well entrenched is the
rule that where the issues have become moot and academic, there is no
justiciable controversy, thereby rendering the resolution of the same of no
practical use or value.13
In any case, the Court finds it necessary to resolve the issue on jurisdiction
raised by petitioners owing to its significance and for future guidance of both
bench and bar. It is a settled principle that courts will decide a question otherwise
moot and academic if it is capable of repetition, yet evading review.14
However, before proceeding, to resolve the question on jurisdiction, the Court
deems it proper to likewise address a procedural error which petitioners
committed.

To plaintiff SM Mart, Inc. - P 11,462,525.02 Petitioners availed of the wrong remedy when they filed the instant special civil
action for certiorari under Rule 65 of the Rules of Court in assailing the
To plaintiff SM Prime Holdings, Inc. - 3,118,104.63 Resolutions of the CA which dismissed their petition filed with the said court and
To plaintiff Star Appliances Center - 2,152,316.54 their motion for reconsideration of such dismissal. There is no dispute that the
assailed Resolutions of the CA are in the nature of a final order as they disposed
To plaintiff Supervalue, Inc. - 1,362,750.34 of the petition completely. It is settled that in cases where an assailed judgment
or order is considered final, the remedy of the aggrieved party is appeal. Hence,
To plaintiff Ace Hardware Phils., Inc. - 419,689.04 in the instant case, petitioner should have filed a petition for review on certiorari
under Rule 45, which is a continuation of the appellate process over the original
To plaintiff Watsons Personal Care Health - 231,453.62 case.15
Stores Phils., Inc.
Petitioners should be reminded of the equally-settled rule that a special civil
To plaintiff Jollimart Phils., Corp. - 140,908.54 action for certiorari under Rule 65 is an original or independent action based on
grave abuse of discretion amounting to lack or excess of jurisdiction and it will lie
To plaintiff Surplus Marketing Corp. - 220,204.70 only if there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law.16 As such, it cannot be a substitute for a lost appeal.17
To plaintiff Signature Mktg. Corp. - 94,906.34
Nonetheless, in accordance with the liberal spirit pervading the Rules of Court
TOTAL: - P 19,316,458.77
and in the interest of substantial justice, this Court has, before, treated a petition
for certiorari as a petition for review on certiorari, particularly (1) if the petition for
Defendants are further enjoined from collecting taxes under Section 21, Revenue certiorari was filed within the reglementary period within which to file a petition for
Code of Manila from herein plaintiff. review on certiorari; (2) when errors of judgment are averred; and (3) when there
is sufficient reason to justify the relaxation of the rules.18 Considering that the
present petition was filed within the 15-day reglementary period for filing a
SO ORDERED.10
petition for review on certiorari under Rule 45, that an error of judgment is
averred, and because of the significance of the issue on jurisdiction, the Court
The parties did not inform the Court but based on the records, the above deems it proper and justified to relax the rules and, thus, treat the instant petition
Decision had already become final and executory per the Certificate of for certiorari as a petition for review on certiorari.
Finality11 issued by the same trial court on October 20, 2008. In fact, a Writ of
Execution12 was issued by the RTC on November 25, 2009. In view of the
Having disposed of the procedural aspect, we now turn to the central issue in this
case. The basic question posed before this Court is whether or not the CTA has
jurisdiction over a special civil action for certiorari assailing an interlocutory order
issued by the RTC in a local tax case.
This Court rules in the affirmative.
On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating
the CTA and giving to the said court jurisdiction over the following:
(1) Decisions of the Collector of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue;
(2) Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges; seizure, detention or
release of property affected fines, forfeitures or other penalties imposed
in relation thereto; or other matters arising under the Customs Law or
other law or part of law administered by the Bureau of Customs; and
(3) Decisions of provincial or City Boards of Assessment Appeals in
cases involving the assessment and taxation of real property or other
matters arising under the Assessment Law, including rules and
regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA
9282) amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its
membership and elevating its rank to the level of a collegiate court with special
jurisdiction. Pertinent portions of the amendatory act provides thus:
Sec. 7. Jurisdiction. - The CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein
provided:
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of
Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties in relations thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be
deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local
tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability
for customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other
laws administered by the Bureau of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise
of its appellate jurisdiction over cases involving the assessment and
taxation of real property originally decided by the provincial or city board
of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to
him automatically for review from decisions of the Commissioner of
Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involving dumping and countervailing duties under Section 301 and 302,
respectively, of the Tariff and Customs Code, and safeguard measures
under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
b. Jurisdiction over cases involving criminal offenses as herein provided:
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or
the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One
million pesos (₱1,000,000.00) or where there is no specified amount
claimed shall be tried by the regular Courts and the jurisdiction of the
CTA shall be appellate. Any provision of law or the Rules of Court to the
contrary notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly determined in the
 same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no
right to reserve the filing of such civil action separately from the criminal
action will be recognized.
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax cases originally decided by them, in their
respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the exercise of their appellate jurisdiction over
tax cases originally decided by the Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts in their respective
jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provides,
however, that collection cases where the principal amount of taxes and
fees, exclusive of charges and penalties, claimed is less than One
million pesos (₱1,000,000.00) shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and Regional Trial Court.
2. Exclusive appellate jurisdiction in tax collection cases:
a. Over appeals from the judgments, resolutions or orders of the
Regional Trial Courts in tax collection cases originally decided by them,
in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the
Regional Trial Courts in the Exercise of their appellate jurisdiction over
tax collection cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction.19
A perusal of the above provisions would show that, while it is clearly stated that
the CTA has exclusive appellate jurisdiction over decisions, orders or resolutions
of the RTCs in local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction, there is no categorical
statement under RA 1125 as well as the amendatory RA 9282, which provides
that th e CTA has jurisdiction over petitions for certiorari assailing interlocutory
orders issued by the RTC in local tax cases filed before it.
The prevailing doctrine is that the authority to issue writs of certiorari involves the
exercise of original jurisdiction which must be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of
appellate jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v.
De Jesus,22 Veloria v. COMELEC,23Department of Agrarian Reform Adjudication
Board v. Lubrica,24 and Garcia v. Sandiganbayan,25 this Court has ruled against
the jurisdiction of courts or tribunals over petitions for certiorari on the ground that
there is no law which expressly gives these tribunals such power.26 It must be
observed, however, that with the exception of Garcia v. Sandiganbayan,27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial
powers. With respect to the Sandiganbayan, Republic Act No. 824928 now
provides that the special criminal court has exclusive original jurisdiction over
petitions for the issuance of the writs of mandamus, prohibition, certiorari, habeas
corpus, injunctions, and other ancillary writs and processes in aid of its appellate
jurisdiction.
In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original jurisdiction, to issue
writs of certiorari, prohibition and mandamus. With respect to the Court of
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate
court, also in the exercise of its original jurisdiction, the power to issue, among
others, a writ of certiorari,whether or not in aid of its appellate jurisdiction. As to
Regional Trial Courts, the power to issue a writ of certiorari, in the exercise of
their original jurisdiction, is provided under Section 21 of BP 129.
The foregoing notwithstanding, while there is no express grant of such power,
with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in
such lower courts as may be established by law and that judicial power includes
the duty of the courts of justice to settle actual controversies involving rights
which are legally demandable and enforceable, and to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government.
On the strength of the above constitutional provisions, it can be fairly interpreted
that the power of the CTA includes that of determining whether or not there has
been grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the RTC in issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in
these cases.
Indeed, in order for any appellate court to effectively exercise its appellate
jurisdiction, it must have the authority to issue, among others, a writ of certiorari.
In transferring exclusive jurisdiction over appealed tax cases to the CTA, it can
reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction.
There is no perceivable reason why the transfer should only be considered as
partial, not total.
Consistent with the above pronouncement, this Court has held as early as the
case of J.M. Tuason & Co., Inc. v. Jaramillo, et al.29 that "if a case may be
appealed to a particular court or judicial tribunal or body, then said court or
judicial tribunal or body has jurisdiction to issue the extraordinary writ of
certiorari, in aid of its appellate jurisdiction."30 This principle was affirmed in De
Jesus v. Court of Appeals,31 where the Court stated that "a court may issue a writ
of certiorari in aid of its appellate jurisdiction if said court has jurisdiction to
review, by appeal or writ of error, the final orders or decisions of the lower
court."32 The rulings in J.M. Tuason and De Jesus were reiterated in the more
recent cases of Galang, Jr. v. Geronimo33 and Bulilis v. Nuez.34
Furthermore, Section 6, Rule 135 of the present Rules of Court provides that
when by law, jurisdiction is conferred on a court or judicial officer, all auxiliary
writs, processes and other means necessary to carry it into effect may be
employed by such court or officer.
If this Court were to sustain petitioners' contention that jurisdiction over their
certiorari petition lies with the CA, this Court would be confirming the exercise by
two judicial bodies, the CA and the CTA, of jurisdiction over basically the same
subject matter – precisely the split-jurisdiction situation which is anathema to the
orderly administration of justice.35 The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the
CTA, the tribunal with the specialized competence over tax and tariff matters, the
role of judicial review over local tax cases without mention of any other court that
may exercise such power. Thus, the Court agrees with the ruling of the CA that
since appellate jurisdiction over private respondents' complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the same
court. To rule otherwise would lead to an absurd situation where one court
decides an appeal in the main case while another court rules on an incident in
the very same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial
abhorrence to split jurisdiction to conclude that the intention of the law is to divide
the authority over a local tax case filed with the RTC by giving to the CA or this
Court jurisdiction to issue a writ of certiorari against interlocutory orders of the
RTC but giving to the CTA the jurisdiction over the appeal from the decision of
the trial court in the same case. It is more in consonance with logic and legal
soundness to conclude that the grant of appellate jurisdiction to the CTA over tax
cases filed in and decided by the RTC carries with it the power to issue a writ of
certiorari when necessary in aid of such appellate jurisdiction. The supervisory
power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should co-exist with, and be a complement to, its appellate jurisdiction
to review, by appeal, the final orders and decisions of the RTC, in order to have
complete supervision over the acts of the latter.36
A grant of appellate jurisdiction implies that there is included in it the power
necessary to exercise it effectively, to make all orders that will preserve the
subject of the action, and to give effect to the final determination of the appeal. It
carries with it the power to protect that jurisdiction and to make the decisions of
the court thereunder effective. The court, in aid of its appellate jurisdiction, has
authority to control all auxiliary and incidental matters necessary to the efficient
and proper exercise of that jurisdiction. For this purpose, it may, when
1âwphi1
necessary, prohibit or restrain the performance of any act which might interfere
with the proper exercise of its rightful jurisdiction in cases pending before it.37
Lastly, it would not be amiss to point out that a court which is endowed with a
particular jurisdiction should have powers which are necessary to enable it to act
effectively within such jurisdiction. These should be regarded as powers which
are inherent in its jurisdiction and the court must possess them in order to
enforce its rules of practice and to suppress any abuses of its process and to
defeat any attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same
level as the CA and shall possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers which may be said to be implied
from a general grant of jurisdiction, in addition to those expressly conferred on
them. These inherent powers are such powers as are necessary for the ordinary
and efficient exercise of jurisdiction; or are essential to the existence, dignity and
functions of the courts, as well as to the due administration of justice; or are
directly appropriate, convenient and suitable to the execution of their granted
powers; and include the power to maintain the court's jurisdiction and render it
effective in behalf of the litigants.38
Thus, this Court has held that "while a court may be expressly granted the
incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in
the absence of prohibitive legislation, implies the necessary and usual incidental
powers essential to effectuate it, and, subject to existing laws and constitutional
provisions, every regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates."39 Hence,
demands, matters or questions ancillary or incidental to, or growing out of, the
main action, and coming within the above principles, may be taken cognizance of
by the court and determined, since such jurisdiction is in aid of its authority over
the principal matter, even though the court may thus be called on to consider and
decide matters which, as original causes of action, would not be within its
cognizance.40
Based on the foregoing disquisitions, it can be reasonably concluded that the
authority of the CTA to take cognizance of petitions for certiorari questioning
interlocutory orders issued by the RTC in a local tax case is included in the
powers granted by the Constitution as well as inherent in the exercise of its
appellate jurisdiction.
Finally, it would bear to point out that this Court is not abandoning the rule that,
insofar as quasi-judicial tribunals are concerned, the authority to issue writs of
certiorari must still be expressly conferred by the Constitution or by law and
cannot be implied from the mere existence of their appellate jurisdiction. This
doctrine remains as it applies only to quasi-judicial bodies.
WHEREFORE, the petition is DENIED.
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Court.
MARIA LOURDES P.A. SERENO
Chief Justice

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE
ARTURO D. BRION
CASTRO
Associate Justice
Associate Justice

No part
LUCAS P. BERSAMIN
MARIANO C. DEL CASTILLO*
Associate Justice
Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

Associate Justice Associate Justice

BIENVENIDO L. REYES ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

CERTIFICATION
 SECOND DIVISION
G.R. No. 211839, March 18, 2019
PRIVATIZATION AND MANAGEMENT OFFICE, PETITIONER, v. COURT OF
TAX APPEALS AND CITY GOVERNMENT OF TACLOBAN, RESPONDENTS.
DECISION
J. REYES, JR., J.:
This Petition for Certiorari under Rule 65 of the 1997 Rules of Court assails the
Resolutions of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB Case No. 901,
as follows:
a) Resolution dated February 7, 2013 which, although it granted
1 On February 7, 2013, the CTA En Banc issued the now assailed Resolution granting
petitioner Privatization and Management Office's (PMO's) Motion
for Suspension of Collection of Real Property Tax and
Cancellation of Warrants of Levy, it however required the
posting/filing of a surety bond equivalent to one and one-half of
the amount sought to be collected;
b) Resolution dated March 1, 2013 which declared as moot the
2 2013 its Compliance Ad Cautelam and filed a Government Service Insurance System
Motion for Exemption from Posting of Surety Bond filed by PMO
and the Philippine Tourism Authority (PTA, now Tourism
Infrastructure and Enterprise Zone Authority [TIEZA]), as the
latter had already posted the required surety bond; and
c) Resolution dated January 29, 2014, which denied PMO's Motion
3
for Reconsideration.
The PMO (petitioner), the Province of Leyte and the PTA are the owners of the Leyte
Park Hotel, Inc. (LPHI), a real property with improvement situated within the
territorial and taxing jurisdiction of private respondent City Government of Tacloban
(respondent City).4
The facilities of LPHI were leased out to Unimaster Conglomeration, Inc. (UCI) for a
monthly rental of P300,000.00 for a period of 12 years.5 Meanwhile, respondent City
sent several demand letters to UCI for it to pay the real property taxes of LPHI in
the amount of P23,377,353.08.6
However, despite repeated demands by respondent City, the real property taxes
remained unpaid. Hence, on December 15, 2004, respondent City filed a complaint
for Collection of Sum of Money before the CTA Special First Division, against the
LPHI and UCI. Thereafter, respondent City amended its complaint and impleaded
additional defendants, namely: The Province of Leyte, the PTA and the petitioner.
Petitioner filed its Answer and argued, among others, that the liability to pay real
property taxes devolves on UCI pursuant to Section 234 of the Local Government
Code.
After trial, the CTA Special First Division rendered a Decision7 dated November 15,
2011 in CTA OC No. 012 holding UCI liable for the payment of the unpaid real
property taxes. UCI moved to reconsider but the same was denied. Aggrieved, UCI
filed a Petition for Review with the CTA En Banc. During the pendency of the
aforesaid petition, respondent City filed a Motion for Execution Pending Appeal
before the CTA Special First Division but the motion was denied. Despite the CTA
denial, respondent City still issued warrants of levy against the properties of
petitioner, allegedly to place the subject properties for auction.
On December 6, 2012, petitioner filed a Motion for Suspension of Collection of Real
Property Tax and Cancellation of Warrants of Levy before the CIA En Banc.
petitioner's Motion for Suspension of Collection of Real Property Tax and
Cancellation of Warrants of Levy conditioned on its filing of a surety bond equivalent
to one and one-half of the amount sought to be collected by respondent City.
On February 14, 2013, petitioner filed a Motion for Exemption from Posting of
Surety Bond on the ground that national government agencies and
instrumentalities, such as petitioner, are not, and should not be required to file any
bond as there should be no doubt as to the solvency of the Republic of the
Philippines. However, as a precautionary measure, petitioner filed on February 15,
(GSIS) Surety Bond in order to ensure suspension of the collection of the real
property tax being sought by the respondent City and prevent execution of the
warrants of levy.
On March 1, 2013, the CTA En Banc issued the assailed Resolution which considered
petitioner's Motion for Exemption from Posting of Surety Bond as moot by virtue of
the latter's filing of the aforementioned surety bond. On April 3, 2013, petitioner
filed a Motion for Reconsideration but the same was denied in another assailed
Resolution dated January 29, 2014.
Dissatisfied, petitioner filed the instant petition for certiorari on the ground that
respondent CTA committed grave abuse of discretion amounting to lack or in excess
of jurisdiction in:
A. DIRECTING PETITIONER, THROUGH ITS RESOLUTION DATED FEBRUARY 7,
2013, TO POST A SURETY BOND IN ORDER TO STAY THE COLLECTION OF REAL
PROPERTY TAX SOUGHT BY RESPONDENT CITY GOVERNMENT OF TACLOBAN
AND PREVENT EXECUTION ON THE WARRANTS OF LEVY[;]
B. HOLDING, IN ITS RESOLUTION DATED MARCH 1, 2013, THAT PETITIONER'S
MOTION FOR EXEMPTION FROM POSTING OF SURETY BOND HAS BEEN
RENDERED MOOT[; and]
C. DENYING, IN ITS RESOLUTION DATED JANUARY 29, 2014, PETITIONER'S
MOTION FOR RECONSIDERATION.8
Central to the instant petition is the issue of whether or not petitioner, as an agency
of the government, is exempt from posting a surety bond as a condition to the
suspension of collection of real property tax.
Section 9 of Republic Act (R.A.) No. 92829 amending Section 11 of R.A. No.
1125,10 provides as follows:
SEC. 9. Section 11 of the same Act is hereby amended to read as follows:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. x x x
xxxx
No appeal taken to the CTA from the decision of the Commissioner of Internal
Revenue or the Commissioner of Customs or the Regional Trial Court, provincial,
city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture, as the case may be, shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however, That
when in the opinion of the Court the collection by the aforementioned government
agencies may jeopardize the interest of the Government and/or the taxpayer[,] the
Court[, at] any stage of the proceeding may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.
xxxx
With the expansion of the jurisdiction of the CTA, it has now the power to take
cognizance of cases appealed to it involving real property taxation. The foregoing
provision provides for the rule that an appeal to the CTA from the decision of the
City Treasurer of a Local Government Unit (as in this case) will not suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability, as provided by existing law. However, when, in the
view of the CTA, the collection may jeopardize the interest of the Government
and/or the taxpayer, it may suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety bond.
It is clear from the foregoing that the CTA may order the suspension of the
collection of taxes, provided that the taxpayer either: (1) deposits the amount
claimed; or (2) files a surety bond for not more than double the amount.11 These
condition precedents were required by law in order to guarantee the payment of the
deficiency taxes assessed against the taxpayer, if and when the case is finally
decided against the said taxpayer.
Petitioner sought that it be exempted from the filing of the surety bond. Petitioner
relied on the case of The Collector of Internal Revenue v. Reyes,12 where the Court
sustained the CTA's exercise of discretion when it did not require the taxpayer to
post a surety bond despite suspending the collection of the tax. It also relied on
numerous cases13 where this Court held that the state is not required to put up a
bond because it is presumed solvent. The petitioner opined that since it is an
agency of the national government, then there is no doubt as to its
solvency.14 Petitioner finally argued that its compliance with the posting of the GSIS
Surety Bond did not render the case moot. A final resolution of the issue of
petitioner's exemption from posting a surety bond must be finally settled.
In the said Reyes case, as cited by petitioner, the CTA issued the injunction on the
basis of the findings that the tax to be collected has already prescribed. The CTA,
however, found that it was no longer necessary for the taxpayer to file a surety
bond. The Court justified it in this wise:
It certainly would be an absurdity on the part of the Court of Tax Appeals to declare
that the collection by the summary methods of distraint and levy was violative of
the law, and then, on the same breath require the petitioner to deposit or file a
bond as a prerequisite for the issuance of a writ of injunction. Let us suppose, for
the sake of argument, that the Court a quo would have required the petitioner to
post the bond in question and that the taxpayer would refuse or fail to furnish said
bond, would the Court a quo be obliged to authorize or allow the Collector of
Internal Revenue to proceed with the collection from the petitioner of the taxes due
by a means it previously declared to be contrary to law? 15
From the foregoing, the Court concluded then that the requirement of the bond as a
condition precedent to the issuance of the writ of injunction applies only in cases
where the processes by which the collection sought to be made by means thereof
are carried out in consonance with the law for such cases provided and not when
said processes are obviously in violation of the law to the extreme that they have to
be suspended for jeopardizing the interests of taxpayer.16
This principle was echoed in the recent case of Spouses Pacquiao v. Court of Tax
Appeals,17 when the Court held:
From all the foregoing, it is clear that the authority of the courts to issue injunctive
writs to restrain the collection of tax and to dispense with the deposit of the amount
claimed or the filing of the required bond is not simply confined to cases where

prescription has set in. As explained by the Court in those cases, whenever it is
determined by the courts that the method employed by the Collector of
Internal Revenue in the collection of tax is not sanctioned by law, the bond
requirement under Section 11 of R.A. No. 1125 should be dispensed with.
(Emphasis and italics in the original)
In the instant case, there was a clear showing that the method employed by the
respondent City in the collection of the real property taxes contravened existing law
and jurisprudence. It must be underscored that the petitioner filed the motion to
suspend the collection of tax, not so much to stay the collection thereof, but
actually to thwart the threat of the property being sold in public auction which may
effectively divest the petitioner, the PTA and the Province of Leyte of the ownership
over the property.
The petitioner recognized the fact - which was affirmed in the CTA En Banc Decision
dated August 22, 2014, that as a government entity, it is exempt from payment of
real property taxes pursuant to Section 234(a) of the 1991 Local Government Code
or R.A. No. 7160.18 The said provision also provides that when the beneficial use of
the real property owned by the Republic or any of its political subdivision, is vested
to a taxable person, the real property is subject to tax. Petitioner, together with the
PTA and the Province of Leyte, had already admitted that they are co-owners of the
subject property and they were leasing the same to UCI, a private entity pursuant
to a Contract of Lease dated September 15, 1994. Thus, pursuant to the
aforementioned Local Government Code provision and also in the case of National
Power Corporation v. Province of Quezon,19 where this Court ruled:
The liability for taxes generally rests on the owner of the real property at the time
the tax accrues. This is a necessary consequence that proceeds from the fact of
ownership. However, personal liability for realty taxes may also expressly rest on
the entity with the beneficial use of the real property, such as the tax on property
owned by the government but leased to private persons or entities, or when the tax
assessment is made on the basis of the actual use of the property. In either case,
the unpaid realty tax attaches to the property but is directly chargeable
against the taxable person who has actual and beneficial use and
possession of the property regardless of whether or not that person is the
owner. (Emphasis and italics in the original)
But, without, however, prejudging the appealed case on the merits, UCI, the actual
and beneficial user of subject property can be said to be directly liable for the real
property taxes on the property owned by the government.
On the basis of the foregoing law and jurisprudence, while it is correct for the
respondent City to assess UCI of the unpaid real property taxes, it is, however, a
clear contravention of the law to proceed with the issuance of the warrant of levy
against the subject property in order to place it for public auction. This method of
collection of the deficiency of real property taxes prejudiced not UCI, the private
entity who is directly charged with the payment of the tax, but the petitioner, the
PTA and the Province of Leyte, the government entities who owned the land.
It is a settled rule that property of public dominion, being outside the commerce of
man, cannot be the subject of an auction sale, levy, encumbrance or disposition
through public or private sale.20 Any encumbrance, levy on execution or auction sale
of any property of public dominion is void for being contrary to public policy.21
Under Article 420 of the Civil Code, the subject property (the LPHI) is a property of
the public dominion owned by the State, through its agents and instrumentalities.
Thus, Article 420 of the Civil Code, provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.
(Emphases supplied)
Thus, being a property of public dominion, the subject property cannot be subject of
public auction sale, notwithstanding its realty tax delinquency. This means that the
respondent City has to satisfy its realty tax claims by serving the accrued realty tax
assessment upon UCI, as the taxable beneficial user of the subject property and in
case of UCFs non-payment, through any means other than the sale at public auction
of the leased property. The case of Philippine Fisheries Development Authority v.
Court of Appeals22 instructs, thus:
In sum, the Court finds that the Authority is an instrumentality of the national
government, hence, it is liable to pay real property taxes assessed by the City of
Iloilo on the IFPC only with respect to those portions which are leased to private
entities. Notwithstanding said tax delinquency on the leased portions of the IFPC,
the latter or any part thereof, being a property of public domain, cannot be sold at
public auction. This means that the City of Iloilo has to satisfy the tax delinquency
through means other than the sale at public auction of the IFPC.
Verily, since the method employed by the respondent City in collecting the realty
taxes due - through the warrant of levy and the eventual public auction of a
property of public dominion - is not sanctioned by law, then it is no longer
necessary for the petitioner to file a surety bond as a condition precedent to
suspend the tax collection.

To repeat, the purpose of the surety bond is to ensure that the tax due will be paid
if and when the case is finally decided against the taxpayer. Indeed, the Republic of
the Philippines need not give this security as it is presumed to be always solvent
and able to meet its obligations.23 Thus, the petitioner, being an agent of the
national government,24 is not required to put up a bond because to do so would be
to indirectly require the state to submit such bond. Since the petitioner had already
filed the required surety bond with the CTA, it is just proper to order the CTA to
release the same for reasons as discussed in this decision.

WHEREFORE, the Petition for Certiorari is GRANTED. The assailed Resolutions

dated February 7, 2013, March 1, 2013 and January 29, 2014 of the Court of Tax
Appeals En Banc in C.T.A. EB Case No. 901 are SET ASIDE insofar as it required
the PMO to file a surety bond as a condition precedent in suspending the real
property tax collection. Accordingly, the CTA is hereby ORDERED to release the
GSIS Surety Bond earlier filed by the PMO.

SO ORDERED.

Carpio, Acting C.J., (Chairperson), Perlas-Bernabe, Caguioa, and Lazaro-Javier, JJ.,

concur.

THIRD DIVISION
G.R. No. 185622, October 17, 2018
INTERNATIONAL CONTAINER TERMINAL SERVICES,
INC., Petitioner, v. THE CITY OF MANILA; LIBERTY M.
TOLEDO, IN HER CAPACITY AS TREASURER OF MANILA;
GABRIEL ESPINO, IN HIS CAPACITY AS RESIDENT AUDITOR
OF MANILA; AND THE CITY COUNCIL OF
MANILA, Respondents.
DECISION
LEONEN, J.:
If a party can prove that the resort to an administrative remedy
would be an idle ceremony such that it will be absurd and unjust
for it to continue seeking relief that evidently will not be granted to
it, then the doctrine of exhaustion of administrative remedies will
not apply.
This is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Court, assailing the September 5, 2008 Decision 2 and
December 12, 2008 Resolution3 of the Court of Tax Appeals En
Banc in C.T.A. EB No. 277. The Court of Tax Appeals En Banc
dismissed the Petition for Review4 filed by International Container
Terminal Services, Inc. (International Container), and affirmed the
May 17, 2006 Decision5 and February 22, 2007 Resolution6 of the
Court of Tax Appeals Second Division.
The Court of Tax Appeals Second Division found that the City of
Manila committed direct double taxation when it imposed a local
business tax under Section 21 (A) of Manila Ordinance No. 7794,
as amended by Section 1(G) of Ordinance No. 7807, in addition to
the business tax already imposed under Section 18 of Manila
Ordinance No. 7794, as amended.7 It ordered a partial refund of
P6,224,250.00, representing the erroneously paid business taxes
for the third quarter of taxable year 1999. However, it did not
order the City of Manila to refund the business taxes paid by
International Container subsequent to the first three (3) quarters
of 1999.8
International Container, a corporation with its principal place of
business in Manila, renewed its business license for 1999. It was
assessed for two (2) business taxes: one for which it was already
paying, and another for which it was newly assessed. It was
already paying a local annual business tax for contractors
equivalent to 75% of 1% of its gross receipts for the preceding
calendar year pursuant to Section 18 of Manila Ordinance No.
7794. The newly assessed business tax was computed at 50% of
1% of its gross receipts for the previous calendar year, pursuant to
Section 21 (A) of Manila Ordinance No. 7794, as amended by
Section 1(G) of Manila Ordinance No. 7807. It paid the additional
assessment, but filed a protest letter9 dated July 15, 1999 before
the City Treasurer of Manila.10
When the City Treasurer failed to decide International Container's
protest within 60 days from the protest, International Container
filed before the Regional Trial Court of Manila its Petition for
Certiorari and Prohibition with Prayer for the Issuance of a
Temporary Restraining Order against the City Treasurer and
Resident Auditor of Manila.11 The City Treasurer and the Resident
Auditor of Manila moved for the dismissal 12 of the Petition for
Certiorari and Prohibition on the ground that International
Container had no cause of action, since it had failed to comply with
the requirements of Section 187 of Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. 13
The Regional Trial Court granted the City Treasurer and the
Resident Auditor's motion and dismissed International Container's
Petition for Certiorari and Prohibition.14 International Container
appealed the dismissal to the Court of Appeals, which set aside the
Regional Trial Court's dismissal and ordered the case remanded to
the Regional Trial Court for further proceedings.15
While the Petition for Certiorari and Prohibition was pending, the
City of Manila continued to impose the business tax under Section
21 (A), in addition to the business tax under Section 18, on
International Container so that it would be issued business permits.
On June 17, 2003, International Container sent a letter16 addressed
to the City Treasurer of Manila, reiterating its protest to the
business tax under Section 21 (A) and requesting for a refund of its
payments in the amount of P27,800,674.36 "in accordance with
Section 196 of the Local Government Code,"17 which states:
 Section 196. Claim for Refund of Tax Credit. — No case or
proceeding shall be maintained in any court for the recovery
of any tax, fee, or charge erroneously or illegally collected
until a written claim for refund or credit has been filed with
the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2)
years from the date of the payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund
or credit.
On July 11, 2003, International Container filed an Amended and
Supplemental Petition,18 alleging, among others, that since the
payment of both business taxes was a pre-condition to the renewal
of International Container's business permit, it was compelled to
pay, and had been paying under protest. It amended its prayer to
include not only the refund of business taxes paid for the first three
(3) quarters of 1999, but also the taxes continuously paid
afterwards.19 The Regional Trial Court admitted its Amended and
Supplemental Petition.20
In its February 28, 2005 Decision,21 the Regional Trial Court
dismissed the Amended and Supplemental Petition, again finding
that International Container failed to comply with the requirements
of Section 195 of the Local Government Code. It found that when
the City Treasurer failed to act on International Container's protest
and continued to collect the business tax under Section 21 (A), it
could be determined that the protest was denied. Under Section
195 of the Local Government Code, International Container had 60
days to appeal the denial to a competent court. However, instead
of appealing the denial, it resorted to a Petition for Certiorari and
Prohibition, which was not a remedy prescribed under Section 195
of the Local Government Code. By failing to avail of the proper
remedy, the assessments made against it became conclusive and
unappealable.22
International Container filed a Petition for Review23 against the City
of Manila, its City Treasurer, its Resident Auditor, and its City
Council (the City of Manila and its Officials) before the Court of Tax
Appeals, docketed as C.T.A. AC No. 11. It prayed that the Court of
Tax Appeals set aside the Regional Trial Court February 28, 2005
Decision, and order the City of Manila and its Officials to refund the
business taxes assessed, demanded, and collected under Section
21 (A) in the amount of P39,268,772.41. This amount
corresponded to the periods from 1999 to the first quarter of 2004
plus any and all subsequent payments until the case would have
been finally decided. Finally, it prayed that the Court of Tax
Appeals order the City of Manila and its Officials to desist from
imposing and collecting the business tax under Section 21 (A), and
to pay attorney's fees.24
On August 18, 2005, International Container sent another
letter25 addressed to the City Treasurer of Manila, reiterating its
protest against the business tax under Section 21 (A), and claiming
a refund for the third quarter of 2003 up to the second quarter of
2005.
The Court of Tax Appeals Second Division issued its May 17, 2006
Decision26 setting aside the Regional Trial Court February 28, 2005
Decision and partially granting International Container's prayer for
a refund. It found that imposing the business tax under Section 21
(A) in addition to the contractors' tax under Section 18 constituted
direct double taxation.27 It ordered the City of Manila and its
Officials to refund the amount of P6,224,250.00, representing the
additional taxes paid for the first three (3) quarters of 1999. The
claims corresponding to the subsequent periods were denied, since
the Court of Tax Appeals Second Division found that International
Container failed to substantiate its claims and to comply with
Section 195 of the Local Government Code. It found that
International Container failed to submit to the court its protest
dated June 17, 2003, and thus, the court could not verify the total
amount of taxes paid and the taxing period covered in this
protest.28
International Container moved to partially reconsider29 the May 17,
2006 Decision, praying, among others, that the Court of Tax
Appeals Second Division elevate the records of the case so that it
may verify the June 17, 2003 protest. It further argued that
Section 196 of the Local Government Code should be applied to its
claim, and not Section 195. The City of Manila and its Officials filed
their own Motion for Reconsideration.30 The Court of Tax Appeals
Second Division directed the elevation of the records. 31
International Container sent a letter32 dated January 10, 2007
addressed to the City Treasurer of Manila, reiterating its protest,
this time, covering the period from the third quarter of 2005 to the
fourth quarter of 2006.
On February 22, 2007, the Court of Tax Appeals Second Division
denied the parties' respective Motions for Reconsideration.33 It
found that International Container raised the applicability of
Section 196 of the Local Government Code for the first time on
appeal. Further, it held that International Container's failure to file
a written protest for each assessment in the mayor's permit after
the first three (3) quarters of 1999 rendered these assessments
final and executory.
International Container filed a Petition for Review with Prayer for
Temporary Restraining Order and/or Preliminary Injunction before
the Court of Tax Appeals En Banc.34 It argued that the Court of Tax
Appeals Second Division should have applied Section 196 of the
Local Government Code for the payments that it had made
subsequent to the third quarter of 1999, pointing out that it had
prayed for a refund as early as the proceedings in the Regional
Trial Court.35 Moreover, Sections 195 and 196 pertain to separate
and independent remedies; to resort to Section 195 as a condition
precedent to availing of the remedy under Section 196 was
illogical.36
On June 22, 2007, International Container filed an Urgent Motion
to Suspend Collection,37 claiming that the City of Manila and its
Officials still collected the business tax under Section 21 (A)
despite the Court of Tax Appeals Second Division May 17, 2006
Decision. The Urgent Motion was granted by the Court of Tax
Appeals En Banc to preserve the status quo and upon the filing by
International Container of a surety bond.38
On September 5, 2008, the Court of Tax Appeals En Banc issued its
Decision,39 dismissing the Petition for Review for lack of merit.
Contrary to the claim of International Container, the Court of Tax
Appeals En Banc found that International Container's causes of
action in the Regional Trial Court and Court of Tax Appeals Second
Division were different from each other. In. the Regional Trial
Court, International Container's action was for the annulment of
the assessment and collection of additional local business tax. In
its Amended and Supplemental Petition, International Container
discussed the propriety of the imposition of the business tax under
Section 21 (A) to support the annulment of the
assessment.40 According to the Court of Tax Appeals En Banc, this
meant that International Container chose to protest the
assessment pursuant to Section 195 of the Local Government
Code, and not to request for a refund as provided by Section
196.41 Notably, International Container prayed for, and was
granted, the opportunity to amend its Petition for Certiorari and
Prohibition, but still failed to include an argument in support of its
alleged claim under Section 196 of the Local Government Code.
The Court of Tax Appeals En Banc further found that Sections 195
and 196 of the Local Government Code are two (2) separate and
distinct remedies granted to taxpayers, with different requirements
and conditions. International Container cannot merely claim that by
complying with the reglementary period of protesting an
assessment under Section 195, it had already complied with the
two (2)-year period stated in Section 196. The Court of Tax
Appeals found that since International Container paid the taxes
under the assessment, its claim for refund assumed that the
assessment was wrong. The claim for refund should be understood
as a logical and necessary consequence of the allegedly improper
assessment such that if the assessment were cancelled, the taxes
paid under it should be refunded. This should not be understood as
the claim for refund under Section 196 of the Local Government
Code.42
Moreover, even if the applicability of Section 195 did not preclude
the availability of Section 196 as a remedy, International Container
only made its protest to the City Treasurer's assessment without
expressly stating that it intended to claim a refund under Section
196 for taxes paid after the first three (3) quarters of 1999. As
pointed out by the Court of Tax Appeals Second Division, its
attempt to invoke Section 196 on appeal was due to its failure to
recover under Section 195, not having made timely written
protests of the assessments made against it.43
Having found that only Section 195 applied, the Court of Tax
Appeals En Banc found that it was no longer necessary to
determine whether International Container complied with the
requirements of Section 196 for the periods after the first three (3)
quarters of 1999. It reiterated the Court of Tax Appeals Second
Division's ruling that International Container should have filed a
written protest within 60 days from receipt of each and every
assessment made by the City of Manila and its Officials, as
embodied in the Mayor's Permit, regardless of its belief that the
written protest would have been futile. Writing "paid under protest"
on the face of municipal license receipts upon payment of the taxes
is not the administrative protests contemplated by law.44
Court of Tax Appeals Associate Justice Caesar A. Casanova
(Associate Justice Casanova) wrote a Concurring and Dissenting
Opinion.45 He noted that the notice of assessment in Section 195 of
the Local Government Code was the same as a notice of
assessment under Section 228 of the 1997 National Internal
Revenue Code. He opined that no notice for deficiency taxes
subsequent to the third quarter of 1999 up to the present was ever
issued by the City of Manila and its Officials; thus, Section 195 of
the Local Government Code did not apply.46
Moreover, according to Associate Justice Casanova, International
Container partially complied with the requirements of Section 196
of the Local Government Code, from the third quarter of 2001 up
to the fourth quarter of 2006. Following its July 15, 1999 protest
for the first three (3) quarters of 1999, it filed claims for refund
before the City Treasurer on June 17, 2003, August 19, 2005, and
January 11, 2007. The payments from October 19, 1999 to April
19, 2001, in the total amount of P15,539,727.90, could no longer
be refunded as the period to claim the refund had prescribed since
its earliest claim was on June 17, 2003. Similarly, the claim for
refund for the first and second quarters of 2007 could not be
allowed since it did not file a claim with the City Treasurer.
Associate Justice Casanova voted to partially grant the petition and
to order the City of Manila and its Officials to refund
P44,134,449.68 in its favor.47
On December 12, 2008, the Court of Tax Appeals En Banc denied
International Container's Motion for Reconsideration 48 for lack of
merit.49 In its Resolution, it addressed the City of Manila and its
Officials' claim in their Comment to the Motion for
Reconsideration50 that the Court of Tax Appeals had no jurisdiction
over International Container's claim for refund from the fourth
quarter of 1999 onwards due to non-payment of docket fees before
the Regional Trial Court.51 It noted that in Sun Insurance Office,
Ltd. v. Asuncion,52 the error of non-payment or insufficiency of
docket fees may be rectified by the payment by the filing party of
the correct amount within a reasonable time but in no case beyond
the applicable prescriptive or reglementary period. However, it held
that Sun Insurance was inapplicable to this case, as there was no
showing that International Container had paid the additional docket
fees. The applicable ruling should be Manchester Development
Corp. v. Court of Appeals ,53 which held that the non-payment or
insufficiency of docket fees would result in the court not acquiring
jurisdiction over the case, rendering void the ruling of the Regional
Trial Court on the additional claims of International Container.54
On December 24, 2008, International Container filed a Motion for
Extension of Time to file Petition for Review55 with this Court,
praying for an additional 30 days, or until February 2, 2009 within
which to file its Petition for Review. This Court granted the Motion
for Extension in its January 14, 2009 Resolution.
On February 2, 2009, International Container filed its Petition for
Review on Certiorari under Rule 45 of the Rules of Court, assailing
the September 5, 2008 Decision and December 12, 2008
Resolution of the Court of Tax Appeals En Banc.56
In its Petition for Review, International Container claims that it is
entitled to a refund of P6,224,250.000 plus P57,865,901.68 in
payments of taxes under Section 21 (A) of Manila Ordinance No.
7764, as amended by Section 1(G) of Manila Ordinance No. 7807. 57
First, it argues that it raised the issue of the refund at the earliest
possible instance at the administrative level, and later, before the
Regional Trial Court, and not only on appeal. It points out that in
its July 15, 1999 Letter to the City of Manila and its Officials, it
requested that if the questioned assessment had already been
paid, then the amount paid should be refunded. For the amounts
paid for the fourth quarter of 1999 up to the second quarter of
2003, it demanded a refund and expressly cited Section 196 of the
Local Government Code in its June 17, 2003 Letter. The City
Treasurer, in its September 1, 2005 Letter, even acknowledged
that International Container had made a claim for refund or tax
credit.58
Petitioner included prayers for refund of the taxes paid under
protest both in its original Petition for Certiorari and Prohibition,
and in its Amended and Supplemental Petition before the Regional
Trial Court.59
Second, petitioner argues that when it filed its Petition before the
Regional Trial Court, it availed of two (2) remedies: a protest under
Section 195 of the Local Government Code for the assessments
made by the City of Manila and its Officials for the first three (3)
quarters of 1999, and a refund under Section 196 of the Local
Government Code for its subsequent payments.60
The P6,224,250.00 ordered refunded by the Court of Tax Appeals
Second Division represented the taxes that petitioner paid under
the assessment issued not only for the taxes for the third quarter
of 1999, but also back taxes for the first and second quarters of
1999. Since the assessment was issued on July 5, 1999, after the
taxes for these quarters were already due, then the assessment
was for deficiency tax assessments. According to petitioner, this
was within the scope of Section 195 of the Local Government Code,
which it claims covers only deficiency tax assessments. 61
As for the additional business taxes paid by petitioner, these were
not deficiency taxes, but taxes due for the current taxable periods.
Since these taxes were required for the issuance of its business
permit, it was forced to pay the assessments under protest. This
was the situation contemplated by Section 196 of the Local
Government Code, which involves the recovery of any tax, fee, or
charge erroneously or illegally collected.62
Petitioner argues that it complied with the requirements of Section
196, namely, that it filed the requisite written claims for refund,
and the judicial claim was filed within two (2) years from payment
or from the date of entitlement to the refund or credit.63
For the amounts paid after the third quarter of 1999 up to the
second quarter of 2003, petitioner filed a claim for refund before
the City Treasurer in its June 17, 2003 Letter. Then, it filed its
Amended and Supplemental Petition before the Regional Trial
Court, among the prayers of which was the recovery of all
payments made under Section 21 (A) of Manila Ordinance No.
7794 subsequent to the first three (3) quarters of 1999. It also
filed claims for refund for the third quarter of 2003 up to the
second quarter of 2005 on August 19, 2005, and from the third
quarter of 2005 up to the fourth quarter of 2006 on January 11,
2007.64
Petitioner claims that there was no longer a need to make separate
written claims for the taxes paid but not covered by these claims
for refund. Citing Central Azucarera Don Pedro v. Central Bank,65 it
points out that this Court has previously dispensed with the filing of
the subsequent claims because it would have been an exercise in
futility since the claims were based on common grounds that the
taxing authority had already rejected. Moreover, as petitioner's
basis for its claims for refund is a pure question of law, there is no
need for it to exhaust its administrative remedies.66
As for the prescriptive period, petitioner avers that it became
entitled to a refund or credit only on July 2, 2007, when the
dismissal of its appeal of the May 17, 2006 Decision and February
22, 2007 Resolution of the Court of Tax Appeals Second Division
became final and executory. It points out that these judgments
declared that Section 21 (A) of Manila Ordinance No. 7764 was
illegal double taxation. Thus, it had until July 2, 2009 to file its
judicial claim for refund for its payments. While it agrees with some
portions of Justice Casanova's Concurring and Dissenting Opinion
in the Court of Tax Appeals En Banc September 5, 2008 Decision, it
argues that all of its payments were covered by its claims for
refund since the two (2)-year period for a judicial refund ended on
July 2, 2009 and the administrative claim may be dispensed with.67
Third, petitioner asserts that the joinder of its protest to the
deficiency tax assessment and the refund of its tax payments are
in accordance with the Rules of Court. Since both are premised on
the same cause of action, namely, the illegal collection of business
taxes under Section 21 (A) of Manila Ordinance No. 7794, to file
separate cases would be to split this cause of action and would
produce a multiplicity of suits.68
Finally, petitioner claims that when it filed its Amended and
Supplemental Petition, it was not ordered by the Regional Trial
Court to pay additional docket and filing fees. Citing Lu v. Lu
Ym,69 it argues that cases should not be automatically dismissed
when there is no showing of bad faith on the part of the filing party
when insufficient docket fees were paid. In any event, it
undertakes to pay any additional docket fees that may be found
due by this Court.70
On February 18, 2009,71 this Court ordered respondents to
comment on the Petition for Review, with which they complied on
April 16, 2009.72
In their Comment, respondents argue that the Regional Trial Court
did not acquire jurisdiction over this case because petitioner failed
to pay the docket fees for the additional claims within the
reglementary period. They claim that petitioner purposefully
avoided paying these docket fees.73
On August 26, 2009, petitioner filed its Reply to the Comment, 74 in
compliance with this Court's July 1, 2009 Resolution.75
In its Reply, petitioner reiterates its argument that the insufficiency
of the docket fees paid for the Amended and Supplemental Petition
does not warrant its dismissal. Citing United Overseas Bank
(formerly Westmont Bank) v. Ros,76 it argues that a case should
not be dismissed simply because a party failed to file the docket
fees, if no bad faith is shown.77 It claims that it did not act with
malice or deliberately intend to evade payment of docket
fees.78 Moreover, it points out that respondents raised the issue of
insufficient docket fees for the first time in its October 25, 2008
Comment before the Court of Tax Appeals En Banc. Respondents
should be deemed estopped from questioning the jurisdiction of the
Regional Trial Court and of the Court of Tax Appeals.79
On December 9, 2009, the parties were ordered to submit their
respective memoranda.80 Petitioner filed its Memorandum on April
5, 2010,81 while respondents filed their Memorandum on June 10,
2010.82
In their Memorandum, respondents argue that petitioner invoked
Section 195 of the Local Government Code when it filed its original
action, and only belatedly introduced its cause of action under
Section 196 before the Court of Tax Appeals. Moreover, even if it
may validly invoke Section 196, it failed to comply with the
requirement of filing a written claim prior to the institution of its
action with the Regional Trial Court since it already filed the case
for refund even before it paid the taxes owed to respondents
beginning the fourth quarter of 1999. Finally, it claims that not only
is there non¬payment of docket fees, petitioner is already barred
from paying the deficiency docket fees, since the period within
which to pay is only within the applicable prescriptive or
reglementary period, which has already lapsed. 83
The issues for this Court's resolution are:
First, whether or not the Regional Trial Court has jurisdiction over
petitioner International Container Terminal Services, Inc.'s claims
for refund from the fourth quarter of 1999 onwards, despite its
non-payment of additional docket fees to the Regional Trial Court;
Second, whether or not Section 195 or Section 196 of the Local
Government Code govern petitioner International Container
Terminal Services, Inc.'s claims for refund from the fourth quarter
of 1999 onwards; and
Finally, whether or not petitioner International Container Terminal
Services, Inc. complied with the requirements that would entitle it
to the refund it claims.
I
It is an established rule that the payment of the prescribed docket
fees is essential for a court to acquire jurisdiction over a
case.84 Nonetheless, in Sun Insurance Office,85 this Court laid down
the principles concerning the payment of docket fees for initiatory
pleadings:
Nevertheless, petitioners contend that the docket fee that
was paid is still insufficient considering the total amount of
the claim. This is a matter which the clerk of court of the
lower court and/or his duly authorized docket clerk or clerk
in-charge should determine and, thereafter, i[f] any amount
is found due, he must require the private respondent to pay
the same.
Thus, the Court rules as follows:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but the payment of the prescribed
docket fee, that vests a trial court with jurisdiction over the
subject matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied by payment of
the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the
applicable prescriptive or reglementary period.
2. The same rule applies to permissive counterclaims, third-
party claims and similar pleadings, which shall not be
considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said
 fee within a reasonable time but also in no case beyond its
applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by
the filing of the appropriate pleading and payment of the
prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if specified
the same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the Clerk of Court
or his duly authorized deputy to enforce said lien and assess
and collect the additional fee.86
Should the docket fees paid be found insufficient considering the
value of the claim, the filing party shall be required to pay the
deficiency, but jurisdiction is not automatically lost. The clerk of
court involved, or his or her duly authorized deputy, is responsible
for making the deficiency assessment.87
If a party pays the correct amount of docket fees for its original
initiatory pleading, but later amends the pleading and increases the
amount prayed for, the failure to pay the corresponding docket
fees for the increased amount should not be deemed to have
curtailed the court's jurisdiction. In PNOC Shipping and Transport
Corp. v. Court of Appeals:88
With respect to petitioner's contention that the lower court
did not acquire jurisdiction over the amended complaint
increasing the amount of damages claimed to P600,000.00,
we agree with the Court of Appeals that the lower court
acquired jurisdiction over the case when private respondent
paid the docket fee corresponding to its claim in its original
complaint. Its failure to pay the docket fee corresponding to
its increased claim for damages under the amended
complaint should not be considered as having curtailed the
lower court's jurisdiction. Pursuant to the ruling in Sun
Insurance Office, Ltd. (SIOL) v. Asuncion, the unpaid docket
fee should be considered as a lien on the judgment even
though private respondent specified the amount of
P600,000.00 as its claim for damages in its amended
complaint.89 (Citation omitted)
When it is not shown that the party deliberately intended to
defraud the court of the full payment of docket fees, the principles
enumerated in Sun Insurance should apply. In United Overseas
Bank:90
This Court is not inclined to adopt the petitioner's piecemeal
construction of our rulings in Manchester and Sun
Insurance. Its attempt to strip the said landmark cases of
one or two lines and use them to bolster its arguments and
clothe its position with jurisprudential blessing must be
struck down by this Court.
All told, the rule is clear and simple. In case where the party
does not deliberately intend to defraud the court in payment
of docket fees, and manifests its willingness to abide by the
rules by paying additional docket fees when required by the
court, the liberal doctrine enunciated in Sun Insurance and
not the strict regulations set in Manchester will apply.91
Here, contrary to the findings of the Court of Tax Appeals En Banc,
the circumstances dictate the application of Sun Insurance.
First, it is undisputed that petitioner paid the correct amount of
docket fees when it filed its original Petition for Certiorari and
Prohibition before the Regional Trial Court. It was when it filed its
Amended and Supplemental Petition, where it prayed for refund of
all the tax payments it had made and would make after the first
three (3) quarters of 1999,92 that the issue of deficient payment of
docket fees arose.
As pointed out by petitioner, in its July 18, 2003 Order admitting
the Amended and Supplemental Petition, the Regional Trial Court
did not order petitioner to pay any additional docket fees
corresponding to its amended prayer:
The Court admits the Amended and Supplemental Petition.
The respondents are ordered to file their responsive
pleading to said Amended Petition. In view of this
development, respondents are given a new period of ten
(10) days from receipt of this Order, to submit said
responsive pleading.
SO ORDERED.93
Notably, as argued by petitioner, the amount it claims under its
amended prayer for refund in the Amended and Supplemental
Petition cannot be determined with absolute certainty, as it
continued to pay the taxes due to respondents during the course of
the proceedings.94
Second, it is clear that respondents never assailed petitioner's
insufficient payment of docket fees before the Regional Trial Court
and the Court of Tax Appeals Second Division. They only raised this
issue in their October 25, 2008 Comment to petitioner's Motion for
Reconsideration95 of the September 5, 2008 Decision of the Court
of Tax Appeals En Banc. Respondents have not denied this.
If a party fails to seasonably raise the other party's failure to pay
sufficient docket fees, then estoppel will set in. In Lu v. Lu Ym,
Sr:96
Assuming arguendo that the docket fees were insufficiently
paid, the doctrine of estoppel already applies.
The assailed August 4, 2009 Resolution cited Vargas v.
Caminas on the non-applicability of the Tijam doctrine
where the issue of jurisdiction was, in fact, raised before the
trial court rendered its decision. Thus the Resolution
explained:
Next, the Lu Ym father and sons filed a motion for
the lifting of the receivership order, which the trial
court had issued in the interim. David, et al., brought
the matter up to the CA even before the trial court
could resolve the motion. Thereafter, David, at al.,
filed their Motion to Admit Complaint to Conform to
the Interim Rules Governing Intra-Corporate
Controversies. It was at this point that the Lu Ym
father and sons raised the question of the amount of
filing fees paid. They also raised this point again in
the CA when they appealed the trial court's decision
in the case below.
We find that, in the circumstances, the Lu Ym father
and sons are not estopped from challenging the
jurisdiction of the trial court. They raised the
insufficiency of the docket fees before the trial court
rendered judgment and continuously maintained
their position even on appeal to the CA. Although the
manner of challenge was erroneous—they should
have addressed this issue directly to the trial court
instead of the OCA—they should not be deemed to
have waived their right to assail the jurisdiction of
the trial court.
Lu Ym father and sons did not raise the issue before the
trial court. The narration of facts in the Court's original
decision shows that Lu Ym father and sons merely inquired
from the Clerk of Court on the amount of paid docket fees
on January 23, 2004. They thereafter still "speculated] on
the fortune of litigation. " Thirty-seven days later or on
March 1, 2004 the trial court rendered its decision adverse
to them.
Meanwhile, Lu Ym father and sons attempted to verify the
matter of docket fees from the Office of the Court
Administrator (OCA). In their Application for the issuance
[of] a writ of preliminary injunction filed with the Court of
Appeals, they still failed to question the amount of docket
fees paid by David Lu, el al. It was only in their Motion for
Reconsideration of the denial by the appellate court of their
application for injunctive writ that they raised such issue.
Lu Ym father and sons' further inquiry from the OCA cannot
redeem them. A mere inquiry from an improper office at
that, could not, by any stretch, be considered as an act of
having raised the jurisdictional question prior to the
rendition of the trial court's decision. In one case, it was
held:
Here it is beyond dispute that respondents paid the
full amount of docket fees as assessed by the Clerk
of Court of the Regional Trial Court of Malolos,
Bulacan, Branch 17, where they filed the complaint.
If petitioners believed that the assessment was
incorrect, they should have questioned it before the
trial court. Instead, petitioners belatedly question the
alleged underpayment of docket fees through this
petition, attempting to support their position with the
opinion and certification of the Clerk of Court of
 another judicial region. Needless to state, such
certification has no bearing on the instant case.
The inequity resulting from the abrogation of the whole
proceedings at this late stage when the decision
subsequently rendered was adverse to the father and sons
is precisely the evil being avoided by the equitable principle
of estoppel.97 (Emphasis supplied, citations omitted)
In this case, respondents failed to explain why they belatedly
raised the issue of insufficient payment of docket fees before the
Court of Tax Appeals En Banc in 2008, even though the issue arose
as early as 2003, when petitioner filed its Amended and
Supplemental Petition. As such, they are now estopped from
assailing the jurisdiction of the Regional Trial Court due to
petitioner's insufficient payment of docket fees.
Finally, there is no showing that petitioner intended to deliberately
defraud the court when it did not pay the correct docket fees for its
Amended and Supplemental Petition. Respondents have not
provided any proof to substantiate their allegation that petitioner
purposely avoided the payment of the docket fees for its additional
claims. On the contrary, petitioner has been consistent in its
assertion that it will undertake to pay any additional docket fees
that may be found due by this Court. Further, it is well settled that
any additional docket fees shall constitute a lien on the judgment
that may be awarded.98
II
Sections 195 and 196 of the Local Government Code govern the
remedies of a taxpayer for taxes collected by local government
units, except for real property taxes:
Section 195. Protest of Assessment. — When the local
treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall
issue a notice of assessment stating the nature of the tax,
fee, or charge, the amount of deficiency, the surcharges,
interests and penalties. Within sixty (60) days from the
receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the
assessment; otherwise, the assessment shall become final
and executory. The local treasurer shall decide the protest
within sixty (60) days from the time of its filing. If the local
treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice cancelling wholly or
partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall
deny the protest wholly or partly with notice to the
taxpayer. The taxpayer shall have thirty (30) days from the
receipt of the denial of the protest or from the lapse of the
sixty (60)-day period prescribed herein within which to
appeal with the court of competent jurisdiction otherwise
the assessment becomes conclusive and unappealable.
Section 196. Claim for Refund of Tax Credit. — No case or
proceeding shall be maintained in any court for the recovery
of any tax, fee, or charge erroneously or illegally collected
until a written claim for refund or credit has been filed with
the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2)
years from the date of the payment of such tax, fee, or
charge, or from the date the taxpayer is entitled to a refund
or credit.
In City of Manila v. Cosmos Bottling Corp.,99 this Court
distinguished between these two (2) remedies:
The first provides the procedure for contesting an
assessment issued by the local treasurer; whereas, the
second provides the procedure for the recovery of an
erroneously paid or illegally collected tax, fee or charge.
Both Sections 195 and 196 mention an administrative
remedy that the taxpayer should first exhaust before
bringing the appropriate action in court. In Section 195, it is
the written protest with the local treasurer that constitutes
the administrative remedy; while in Section 196, it is the
written claim for refund or credit with the same office. As to
form, the law does not particularly provide any for a protest
or refund claim to be considered valid. It suffices that the
written protest or refund is addressed to the local treasurer
expressing in substance its desired relief. The title or
denomination used in describing the letter would not
ordinarily put control over the content of the letter.
Obviously, the application of Section 195 is triggered by an
assessment made by the local treasurer or his duly
authorized representative for nonpayment of the correct
taxes, fees or charges. Should the taxpayer find the
assessment to be erroneous or excessive, he may contest it
by filing a written protest before the local treasurer within
the reglementary period of sixty (60) days from receipt of
the notice; otherwise, the assessment shall become
conclusive. The local treasurer has sixty (60) days to decide
said protest. In case of denial of the protest or inaction by
the local treasurer, the taxpayer may appeal with the court
of competent jurisdiction; otherwise, the assessment
becomes conclusive and unappealable.
On the other hand, Section 196 may be invoked by a
taxpayer who claims to have erroneously paid a tax, fee or
charge, or that such tax, fee or charge had been illegally
collected from him. The provision requires the taxpayer to
first file a written claim for refund before bringing a suit in
court which must be initiated within two years from the date
of payment. By necessary implication, the administrative
remedy of claim for refund with the local treasurer must be
initiated also within such two-year prescriptive period but
before the judicial action.
Unlike Section 195, however, Section 196 does not
expressly provide a specific period within which the local
treasurer must decide the written claim for refund or credit.
It is, therefore, possible for a taxpayer to submit an
administrative claim for refund very early in the two-year
period and initiate the judicial claim already near the end of
such two-year period due to an extended inaction by the
local treasurer. In this instance, the taxpayer cannot be
required to await the decision of the local treasurer any
longer, otherwise, his judicial action shall be barred by
prescription.
Additionally, Section 196 does not expressly mention an
assessment made by the local treasurer. This simply means
that its applicability does not depend upon the existence of
an assessment notice. By consequence, a taxpayer may
proceed to the remedy of refund of taxes even without a
prior protest against an assessment that was not issued in
the first place. This is not to say that an application for
refund can never be precipitated by a previously issued
assessment, for it is entirely possible that the taxpayer,
who had received a notice of assessment, paid the
assessed tax, fee or charge believing it to be
erroneous or illegal. Thus, under such circumstance, the
taxpayer may subsequently direct his claim pursuant
to Section 196 of the LGC.100 (Emphasis in the original,
citation omitted)
If the taxpayer receives an assessment and does not pay the tax,
its remedy is strictly confined to Section 195 of the Local
Government Code.101 Thus, it must file a written protest with the
local treasurer within 60 days from the receipt of the assessment.
If the protest is denied, or if the local treasurer fails to act on it,
then the taxpayer must appeal the assessment before a court of
competent jurisdiction within 30 days from receipt of the denial, or
the lapse of the 60-day period within which the local treasurer
must act on the protest.102 In this case, as no tax was paid, there
is no claim for refund in the appeal.103
If the taxpayer opts to pay the assessed tax, fee, or charge, it
must still file the written protest within the 60-day period, and then
bring the case to court within 30 days from either the decision or
inaction of the local treasurer. In its court action, the taxpayer
may, at the same time, question the validity and correctness of the
assessment and seek a refund of the taxes it paid.104 "Once the
assessment is set aside by the court, it follows as a matter of
course that all taxes paid under the erroneous or invalid
assessment are refunded to the taxpayer."105
On the other hand, if no assessment notice is issued by the local
treasurer, and the taxpayer claims that it erroneously paid a tax,
fee, or charge, or that the tax, fee, or charge has been illegally
collected from him, then Section 196 applies.106
Here, there is no dispute on the refund of P6,224,250.00,
representing the additional taxes paid for the first three (3)
quarters of 1999, as ordered by the Court of Tax Appeals Second
Division in its May 17, 2006 Decision on to petitioner's entitlement
to a refund of the taxes paid subsequent to the third quarter of
1999, which was denied by the Court of Tax Appeals Second
Division on the ground that petitioner failed to comply with the
requirements of Section 195.
When petitioner raised the applicability of Section 196 to the claim
for refund of these subsequent payments, the Court of Tax Appeals
Second Division, as affirmed by the Court of Tax Appeals En Banc,
held that Section 196 cannot apply as petitioner previously
anchored its claims under Section 195. As ruled by the Court of
Tax Appeals En Banc:
Unmistakably, Section 195 and Section 196 of the LGC are
two separate and diverse remedies granted to taxpayers,
calling for different requirements and conditions for their
application. Considering so, petitioner should have been
clear on the basis of its action. It cannot be allowed to
resort to an all-encompassing remedy so that in case it is
disqualified under once, it can immediately shift to the
other.
When petitioner appealed to the Second Division, the
following issues were raised:
1. Whether or not the Petition of petitioner were
prematurely filed, or, whether or not the said
petition is the "appeal" contemplated in Section 195
of the Local Government Code.
2. Whether or not petitioner is taxable under Section 21
(A) of Manila Ordinance No. 7794, as amended by
Manila Ordinance No. 7807, given the fact that it is
already taxed as a contractor under Section 18 of
the same ordinance.
Again, a cursory reading of the above as well as the
arguments, discussions and theories in the Petition for
Review and Memorandum filed before the Second Division
shows that petitioner's argument/theory on the applicability
of Section 196 to its claim after the first three quarters of
1999 was not ascertainable. In contrast, the petition is
enclosed with supporting arguments on petitioner's protest
to the imposition of the additional local business tax. There
was no mention or discussion of Section 196.
From the RTC until the filing of a petition before the Second
Division, emphasis had been given on petitioner's
arguments questioning the assessment.107 (Emphasis in the
original)
The nature of an action is determined by the allegations in the
complaint and the character of the relief sought.108 Here, petitioner
seeks a refund of taxes that respondents had collected.
Following City of Manila,109 refund is available under both Sections
195 and 196 of the Local Government Code: for Section 196,
because it is the express remedy sought, and for Section 195, as a
consequence of the declaration that the assessment was erroneous
or invalid. Whether the remedy availed of was under Section 195
or Section 196 is not determined by the taxpayer paying the tax
and then claiming a refund.
What determines the appropriate remedy is the local government's
basis for the collection of the tax. It is explicitly stated in Section
195 that it is a remedy against a notice of assessment issued by
the local treasurer, upon a finding that the correct taxes, fees, or
charges have not been paid. The notice of assessment must state
"the nature of the tax, fee, or charge, the amount of deficiency,
the surcharges, interests and penalties."110 In Yamane v. BA
Lepanto Condominium Corp.:111
Ostensibly, the notice of assessment, which stands as the
first instance the taxpayer is officially made aware of the
pending tax liability, should be sufficiently informative to
apprise the taxpayer the legal basis of the tax. Section 195
of the Local Government Code does not go as far as to
expressly require that the notice of assessment specifically
cite the provision of the ordinance involved but it does
require that it state the nature of the tax, fee or charge, the
amount of deficiency, surcharges, interests and penalties.
In this case, the notice of assessment sent to the
Corporation did state that the assessment was for business
taxes, as well as the amount of the assessment. There may
have been prima facie compliance with the requirement
under Section 195. However in this case, the Revenue Code
provides multiple provisions on business taxes, and at
varying rates. Hence, we could appreciate the Corporation's
confusion, as expressed in its protest, as to the exact legal
basis for the tax. Reference to the local tax ordinance is
 vital, for the power of local government units to impose
local taxes is exercised through the appropriate ordinance
enacted by the sanggunian, and not by the Local
Government Code alone. What determines tax liability is the
tax ordinance, the Local Government Code being the
enabling law for the local legislative body.112 (Citations
omitted)
No such precondition is necessary for a claim for refund pursuant
to Section 196.113
Here, no notice of assessment for deficiency taxes was issued by
respondent City Treasurer to petitioner for the taxes collected after
the first three (3) quarters of 1999. As observed by Court of Tax
Appeals Justice Casanova in his Concurring and Dissenting Opinion
to the September 5, 2008 Decision:
In order to apply Section 195 of the LGC, there is a need for
the issuance of a notice of assessment stating the nature of
the tax, fee or charge, the amount of deficiency, the
surcharges, interests and penalties. It is only upon receipt
of this notice of assessment that a taxpayer is required to
file a protest within sixty (60) days from receipt thereof.
Given the nature of a notice of assessment, it is my opinion
that no notice pertaining to deficiency taxes for the periods
subsequent to the 3rd Quarter of 1999 up to the present
were ever issued or sent by respondents to ICTSI.
In ICTSI's case, as correctly found by the Second
Division, viz:
"Records disclose in the instant case that petitioner
filed a protest pursuant to Section 195 of the LGC
only with respect to the assessment of the amount of
P6,224,250.00, which covers the [first three
quarters] of 1999. Petitioner protested the said
assessment on July 15, 1999 and paid the same
amount under protest. This is not controverted by
the respondents."
Hence, Section 195 of the LGC cannot apply to the period
subsequent to the 3rd Quarter of 1999 because ICTSI did
not receive any notice of assessment thereafter that states
the nature of the tax[,] amount of deficiency[,] and
charges.114
The "assessments" from the fourth quarter of 1999 onwards were
Municipal License Receipts; Mayor's Permit, Business Taxes, Fees &
Charges Receipts; and Official Receipts issued by the Office of the
City Treasurer for local business taxes, which must be paid as
prerequisites for the renewal of petitioner's business permit in
respondent City of Manila.115 While these receipts state the amount
and nature of the tax assessed, they do not contain any amount of
deficiency, surcharges, interests, and penalties due from petitioner.
They cannot be considered the "notice of assessment" required
under Section 195 of the Local Government Code.
When petitioner paid these taxes and filed written claims for refund
before respondent City Treasurer, the subsequent denial of these
claims should have prompted resort to the remedy laid down in
Section 196, specifically the filing of a judicial case for the recovery
of the allegedly erroneous or illegally collected tax within the two
(2)-year period.
Petitioner appealed the denial of the protest against respondent
City Treasurer's assessment and the action against the denial of its
claims for refund. For both issues, petitioner's arguments are
based on the common theory that the additional tax under Section
21 (A) of Manila Ordinance No. 7794, as amended by Section 1(G)
of Manila Ordinance No. 7807, is illegal double taxation. Hence,
their joinder in one (1) suit was legally appropriate and avoided a
multiplicity of suits.116
III
A tax refund or credit is in the nature of a tax
exemption,117 construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.118 Claimants of a tax
refund must prove the factual basis of their claims with sufficient
evidence.119
To be entitled to a refund under Section 196 of the Local
Government Code, the taxpayer must comply with the following
procedural requirements: first, file a written claim for refund or
credit with the local treasurer; and second, file a judicial case for
refund within two (2) years from the payment of the tax, fee, or
charge, or from the date when the taxpayer is entitled to a refund
or credit.120
As to the first requirement, the records show that the following
written claims for refund were made by petitioner:
In its June 17, 2003 Letter to the City Treasurer, it claimed a
refund of P27,800,674.36 for taxes paid from the fourth quarter of
1999 up to the second quarter of 2003.121
In its August 18, 2005 Letter to the City Treasurer, it claimed a
refund of P14,190,092.90 for taxes paid for the third quarter of
2003 up to the second quarter of 2005.122
In her September 1, 2005 Response123 to the August 18, 2005
Letter, City Treasurer Liberty M. Toledo denied the claim, stating in
part:
With respect to the alleged final and executory decision of
the Regional Trial Court, Branch 21, Manila in Civil Case No.
00-97081, please be informed that as of this writing, there
is no decision yet rendered by the Supreme [Court] on the
appeal made by the City. Hence, the decision has not
attained finality.
In view thereof and considering that the issue on whether
or not Golden Arches is liable under Section 21 or not and
that the same constitute double taxation is sub-judice due
to the case filed in court by your company, this Office,
cannot, much to our regret, act favorably on your claim for
refund or credit of the tax collected as mentioned above.
Rest assured that upon receipt of any decision from the
Supreme Court declaring Section 21 illegal and
unconstitutional, this Office shall act accordingly.124
Thereafter, petitioner sent its January 10, 2007 Letter to the City
Treasurer claiming a refund of taxes paid for the third quarter of
2005 until the fourth quarter of 2006, pursuant to the Court of Tax
Appeals Second Division May 17, 2006 Decision.125
As for the taxes paid thereafter and were not covered by these
letters, petitioner readily admits that it did not make separate
written claims for refund, citing that "there was no further
necessity"126 to make these claims. It argues that to file further
claims before respondent City Treasurer would have been "another
exercise in futility"127 as it would have merely raised the same
grounds that it already raised in its June 17, 2003 Letter:
In the present controversy, it can be gleaned from the
foregoing discussion that to file a written claim before the
Respondent City Treasurer would have been another
exercise in futility because the grounds for claiming a refund
for the subsequent years would have been the very same
grounds cited by petitioner in support of its 17 June 2003
letter that was not acted upon by Respondent City
Treasurer. Thus, it would have been reasonable to expect
that any subsequent written claim would have likewise been
denied or would similarly not be acted upon. This is
bolstered by the fact that during the pendency of the instant
case, from its initial stages before the Regional Trial Court
up to the present, Respondents have continued and
unceasingly assessed and collected the questioned local
business tax. . . . 128
The doctrine of exhaustion of administrative remedies requires
recourse to the pertinent administrative agency before resorting to
court action.129 This is under the theory that the administrative
agency, by reason of its particular expertise, is in a better position
to resolve particular issues:
One of the reasons for the doctrine of exhaustion is the
separation of powers, which enjoins upon the Judiciary a
becoming policy of non-interference with matters coming
primarily (albeit not exclusively) within the competence of
the other departments. The theory is that the administrative
authorities are in a better position to resolve questions
addressed to their particular expertise and that errors
committed by subordinates in their resolution may be
rectified by their superiors if given a chance to do so. A no
less important consideration is that administrative decisions
are usually questioned in the special civil actions of
certiorari, prohibition and mandamus, which are allowed
only when there is no other plain, speedy and adequate
remedy available to the petitioner. It may be added that
strict enforcement of the rule could also relieve the courts of
 a considerable number of avoidable cases which otherwise
would burden their heavily loaded dockets.130 (Citation
omitted)
When there is an adequate remedy available with the
administrative remedy, then courts will decline to interfere when
the party refuses, or fails, to avail of it.131
Nonetheless, the failure to exhaust administrative remedies is not
always fatal to a party's cause. This Court has admitted of several
exceptions to the doctrine:
As correctly suggested by the respondent court, however,
there are a number of instances when the doctrine may be
dispensed with and judicial action validly resorted to
immediately. Among these exceptional cases are: 1) when
the question raised is purely legal; 2) when the
administrative body is in estoppel; 3) when the act
complained of is patently illegal; 4) when there is urgent
need for judicial intervention; 5) when the claim involved is
small; 6) when irreparable damage will be suffered; 7)
when there is [no] other plain, speedy and adequate
remedy; 8) when strong public interest is involved; 9) when
the subject of the controversy is private land; and 10) in
quo warranto proceedings.132 (Citations omitted)
If the party can prove that the resort to the administrative remedy
would be an idle ceremony such that it will be absurd and unjust
for it to continue seeking relief that evidently will not be granted to
it, then the doctrine would not apply. In Central Azucarera:133
On the failure of the appellee to exhaust administrative
remedies to secure the refund of the special excise tax on
the second importation sought to be recovered, we are of
the same opinion as the trial court that it would have been
an idle ceremony to make a demand on the administrative
officer and after denial thereof to appeal to the Monetary
Board of the Central Bank after the refund of the first excise
tax had been denied.134
As correctly pointed out by petitioner, the filing of written claims
with respondent City Treasurer for every collection of tax under
Section 21 (A) of Manila Ordinance No. 7764, as amended by
Section 1(G) of Ordinance No. 7807, would have yielded the same
result every time. This is bolstered by respondent City Treasurer's
September 1, 2005 Letter, in which it stated that it could not act
favorably on petitioner's claim for refund until there would have
been a final judicial determination of the invalidity of Section 21
(A).
Further, the issue at the core of petitioner's claims for refund, the
validity of Section 21 (A) of Manila Ordinance No. 7794, as
amended by Section 1(G) of Manila Ordinance No. 7807, is a
question of law.135 When the issue raised by the taxpayer is purely
legal and there is no question concerning the reasonableness of the
amount assessed, then there is no need to exhaust administrative
remedies.136
Thus, petitioner's failure to file written claims of refund for all of
the taxes under Section 21 (A) with respondent City Treasurer is
warranted under the circumstances.
Similarly, petitioner complied with the second requirement under
Section 196 of the Local Government Code that it must file its
judicial action for refund within two (2) years from the date of
payment, or the date that the taxpayer is entitled to the refund or
credit. Among the reliefs it sought in its Amended and
Supplemental Petition before the Regional Trial Court is the refund
of any and all subsequent payments of taxes under Section 21 (A)
from the time of the filing of its Petition until the finality of the
case:
WHEREFORE, premises considered, it is respectfully prayed
–
....
c) after trial, a decision be rendered ordering the respondents to
refund the local business taxes assessed, demanded and
collected by them and paid under protest by petitioner, in the
amount of P6,224,250.00, corresponding to the first three (3)
quarters of 1999 plus any and all subsequent payments of
taxes under Section 21 (A) of Manila Ordinance No. 7794, as
amended, made by petitioner from the time of the filing of this
 Petition until this case is finally decided, together with legal
interest thereon, as well as the attorney's fees and costs of
suit.137

As acknowledged by respondent City Treasurer in her September

1, 2005 Letter, petitioner's entitlement to the refund would only
arise upon a judicial declaration of the invalidity of Section 21 (A)
of Manila Ordinance No. 7794, as amended by Section 1(G) of
Manila Ordinance No. 7807. This only took place when the Court of
Tax Appeals En Banc dismissed respondents' Petition for Review of
the May 17, 2006 Decision of the Court of Tax Appeals Second
Division, rendering the judgment on the invalidity of Section 21 (A)
final and executory on July 2, 2007.138 Therefore, the judicial
action for petitioner's claim for refund had not yet expired as of the
filing of the Amended and Supplemental Petition.

WHEREFORE, the Petition for Review on Certiorari is GRANTED.

The September 5, 2008 Decision and December 12, 2008
Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No.
277 are hereby REVERSED and SET ASIDE. The Court of Tax
Appeals En Banc is DIRECTED to proceed with the resolution on
the merits of C.T.A. EB No. 277 with due and deliberate dispatch.

SO ORDERED.

Peralta (Chairperson), J. Reyes, Jr., and Hernando, JJ., concur.

Gesmundo, J., on leave.